An arrangement made between a franchisor (one party) that permits or licenses some rights and authority to a franchisee (another party), such an arrangement is known as Franchising. Such franchising opportunity makes great marketing strategies for business expansion.
A contractual agreement also happens between the parties to make sure that nothing goes wrong because the franchisor allows and authorizes rights to the franchisee to sell goods, services and gives them the right to use their trademark and brand name, where the work of franchisee is to act as a dealer. The rights available to the franchisee can even be in terms of acquiring the Intellectual Property Rights.
The franchisee in return pays a one-time fee or honorarium and some share of the revenue. They need not spend money on training employees as the franchisor renders those services and business techniques.
Attributes of Franchising:-
- By the franchising agreement, the franchisee gets to avail with the permission of the franchisor the intellectual property like trademarks and patents.
- In return for all the services, rights, goods, and authorization the franchisee pays a certain amount of fees and even shares a part of his revenue or profit to the franchisor.
- Finally, both the parties agree to the terms and conditions of the franchising agreement per the franchise and put down their signatures.
Franchising can be a very good opportunity for the franchisor to expand the business worldwide without even spending additional costs on the expansion of the business as all the expenditures of expansion are shouldered by the franchisee. And this also them the franchisor to invigorate the brand name, increasing goodwill and approaching more customers.
The benefit for the franchisee is that before diving into a business whose success and failure are unknown to them. Such a thing will not happen with them in this franchised business as they have the choice to start a business with a pre-established brand name of the franchisor party. Another advantage which is availed by the franchisee is that they don’t need to spend anything on the training as the franchisor furnishes this. They get exclusive rights to sell the products or services within an area and also get to know the trade secrets and methodology of the brands.