Franchise business is very popular in these days. Franchise which is a system of selling or distributing goods that are quite popular or newly launched. Especially in big cities, we can find businesses that use a franchise system. So, what we are discussing this time is actually what is a franchise? Here’s the full explanation:
What is franchise?
What is franchise? Franchising is an agreement that binds both parties, where one party in the agreement gets the right to utilize intellectual property, including selling goods and services by giving rewards to the other party based on certain agreements.
How many parties are in franchise?
In a franchise, there are two parties involved, the franchisor and the franchisee. Franchisor is a party that gives rights to others to be able to use their intellectual property, or sell and use the products and characteristics of the business they have. While the franchisee is a business entity or individual entitled to use the intellectual property provided by the franchisor.
Costs to run a franchise
When developing a franchise business, the franchisee will be burdened by two types of costs, the initial fee and the royalty fee. Initial costs are costs incurred to pay for acquisition of business premises and capital purchases of raw materials in accordance with specified specifications.
What is royalty fee in franchise?
Then the royalty fee is the fee paid by the franchisee to the franchisor, usually taken from the gross income of the business and paid monthly. Generally, royalty fees are 5 to 15 percent of the franchisee’s gross income.
What is Franchise History?
Franchises have experienced a fairly long history. The franchise was originally introduced around 1950 by Isaac Singer. Isaac Singer is a Singer brand sewing machine maker. At that time, he wanted to increase sales. Although Singer’s efforts failed, he was the first to introduce the franchise business model.
The sales method used by Isaac Singer was copied by other business people. Those who follow the Isaac Singer franchise model are said to have achieved considerable success. One of the first to follow it was one of the automotive industries in the United States, General Motors Industry in 1898. While one of the followers of the most successful franchise business model was the founder of Coca Cola, John S Pemberton.
After that, a lot more franchises used this system for fast food restaurant businesses such as McDonalds, A&W, and others. The main initial idea of a franchise is to allow business partners to use the same name, food menu, logo and even the same design. This idea will later be exchanged for a number of payments.
Types of Franchises
Franchises can be divided into two types, namely foreign franchises and domestic franchises.
Franchise abroad is a type of franchise that originates from abroad. Usually, this type of franchise is well known in various countries around the world and has a clearer system. Foreign franchise brands are considered more prestigious according to public perception. Examples of foreign franchises are McDonalds, Pizza Hut, Burger King, KFC, and others.
Domestic franchises are types of franchises originating from within the country. This type of franchise is considered to be a pretty good investment. This business is also suitable for people who want to become entrepreneurs but do not have enough knowledge and ideas. This system is going to help general public as well who have resources and want to start business with reputed names.