How do Franchises work?

Okay, this frog is a sucker for stick figures. Don’t judge me. Something about a stick figure reminds me that even though whoever made the video may have a deeper understanding of the topic, they still can’t draw to save their life and that makes me happy because I can’t either. There is something to be said about being able to identify with your audience.

These happy little stick people are going to help me explain how franchises work. Because franchising is kind of complicated in a simple way. Once you break it down to burgers, fries, and donuts, it makes things a lot easier. And once you have the knowledge available to you, you can decide for yourself if you’d rather join a franchise restaurant or start up your very own restaurant brand.

How do Franchises work? How do they make money?

There are three main ways that Franchisers (that is, the brand name restaurant you’re buying into) make money.

  1. The first way is when the franchisee (that’s you!) is allowed to purchase rights into the company. This agreement gives the franchisee (that’s you again) the opportunity to use the existing brand and menu (drawing in customers who are already familiar with the brand).
  2. The second way is by having the franchisee agree to purchase all of the  materials needed to open and maintain the restaurant from the franchiser (this goes as far as to include everything from the furniture to the continuous purchase of food products).
  3. The third way the franchiser makes money is by agreeing with the franchisee about receiving a certain percentage of sales. This means that for every dollar you (the franchisee) makes, you send some cents of that to the franchiser. In exchange for this, the franchiser typically agrees to pay for all marketing.

The franchisee makes money by not having to pay for marketing tools and by receiving the customer base that follows a well known brand. While the franchisee doesn’t get to have a big part in decision making when it comes to marketing, or usually even the layout and look of the restaurant, they can sit back and smile knowing that there will be profit in letting someone else do the dirty work.

Hopefully this video helped explain a bit about how franchises work. We look forward to seeing how we can help your franchise with any equipment!

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