In India, the franchise industry is growing in popularity. Rather than starting a business from scratch, entrepreneurs prefer to own a franchise. Let’s dive in to know more about what is a Franchise system and how does it work in India? A franchise business, also known as franchising, is one in which an already established business grants another business owner a license to use its name and expertise in exchange for a fee.
Franchise System – India
A franchise system is a business in which an individual or entity known as the franchisee owns a business using another entity’s also known as the franchisor trademark, brand, and business model. In simple terms, a franchisee operates a business for a set period by utilizing the franchisor’s existing brand name and business model.
As a result, both the franchisee and the franchisor have a legal and commercial relationship with one another. In a franchise system, the franchisee sells the franchisor’s products or services while using the franchisor’s trademark and brand name. A franchisee pays a franchise fee and enters into a contract with the franchisor. After all legal formalities are completed, a franchisee may open a new branch of the franchisor’s business.
The relationship between franchisor and franchisee is important because it is the foundation of a franchise business. For a fee, the franchisor allows the franchisee to use his/her business name, trademark, services, techniques, methods, and so on. As a result, it assists the franchisor in expanding the name and brand to a larger group of people and the franchisee in running a low-cost business.
Benefits of Franchise System:
Franchisor:
- Multiple sources of revenue
- Brand recognition in new locations
- Brand Exploration
- Rapid expansion
- Higher profits
- Expert knowledge
- Brand name
- Complete business model
- Minimum staff
- Less capital
- Less advertising
Franchise Models in India
The following are examples of franchise models, which describe how a franchise business is run:
FOCO – Franchise Owned Company Operated
In a FOCO business model, the franchisee invests in the property as well as other additional capital expenditures. The franchisor manages the operations and operating costs. The franchisee receives a fixed percentage or share of the return from the franchisor.
FOFO – Franchise Owned Franchise Operated
The franchisee owns and operates the franchise business following the franchisor’s instructions in FOFO. The franchisor determines the outlet’s prices and merchandise. The Franchisor provides the brand name in exchange for a franchise fee for a set period. The franchisee bears the operational costs and must pay the franchisor a percentage of revenue (royalty).
COFO – Company Owned, Franchise operated
The franchisor invests in the franchise business in the COFO model, but the franchisee operates it following the franchisor’s instructions. However, because most companies (franchisors) investing in expanding their business operations prefer to run it on their own, this franchise business model is rare and not common in the industry.
COCO – Company Owned and Company Operated
The franchisor owns and operates the business in COCO. The franchise has nothing to do with franchising. As a result, the franchisor funds the entire franchise, and its employees run it.
Irrespective of the Franchise model chosen, a franchisor and franchisee should have a great relationship in a franchise business to ensure the brand’s success. This relationship is governed by the franchise agreement in India.
sparkle★minds have 500+ franchise successful clients, contact us today & achieve great success in franchising your business. Happy Franchising with Us!
