What Is Brand Franchising? Understanding the Franchising Concept

Franchising is now applied in many business fields. From food and beverage and furniture to building materials, all use franchise law. This model gives businesses and their partners many chances to succeed. Today's article Mona Media compiles all the information about what brand franchising is so that you can understand it as fully as possible.

What is the concept of brand franchising?

Franchising is how a business licenses its partners to do business under its brand. The franchise period depends on the contract and negotiation. While using the brand, you pay the brand owner a certain amount of money. Franchising now comes in several types: full franchise, partial franchise, franchise with capital contribution, and franchise with management participation. We explain each type in detail below.

Types of brand franchising

Franchising is divided into 4 types. Depending on the partner and business, a different type is chosen during cooperation and negotiation.

1. Full franchise

A full business format franchise is the comprehensive form of franchising. Under this method, the franchisee can use the brand for 5 to 30 years. Depending on negotiation, the cost for a fixed term of full franchise varies. To take on a full franchise, you need to prepare matters such as:

• Ensure you have a management system, infrastructure and operating staff that meet standards.
• Share production/business technology know-how, and keep these secrets/formulas/strategies confidential.
• Build the brand system.
• Matters related to the product/service/brand.

The cost of a full franchise is discussed between the lawyer, the business and the franchisee. Everything is stated clearly in the contract and carried out according to the items listed in it.

2. Partial franchise

The English term "non-business format franchise" is used for a partial franchise. In this form, the business franchises only some fields, functions and rights to you, not everything. The franchisor intervenes in and supervises the franchisee's production/supply process.

3. Franchise with management participation

The English name for a franchise with management participation is management franchise. Here, the franchisor takes part in management and operation. This helps the business's partners operate more easily, gain management experience and supply products/services quickly.

4. Franchise with capital investment

Equity franchise is a franchise with capital investment. The franchisor invests a certain amount of capital in the franchised company. With this form, the franchisor can learn more about new markets.

Pros and cons of brand franchising

Franchising reduces losses compared with building a new brand. It brings many advantages in business, market entry and product marketing. However, these franchise forms also have some limits. We will help you understand the pros and cons of franchising before you make these important decisions.

Advantages

• You are given the recipes, technology and a professional process for marketing the product/service. Losses are limited, and cost and time are shorter than building a new brand.
• Franchising brings many benefits when you choose big Vietnamese brands, and especially big foreign brands.
• Product/service quality is assured. Famous brands have passed quality inspections by many authorities and been rated by users. They have improved their products and services to the best level to compete with rivals.
• The sales system has already been built. You take over this process and run it easily without trouble.
• Laws have been introduced requiring maximum support from franchisors, so that franchisees' interests are protected. The law protects you in these special forms of business.
• You get support with staff training, building the system and everything related to the brand.

Disadvantages

Besides the advantages, franchising has some risks, such as:

• You may only do business under that brand name. You do not fully own a brand of your own.
• Running a chain business carries risks if the brand is hit by a scandal.
• You have to compete with other outlets of the same brand.
• You are bound by the franchise brand's framework. It is hard to be creative with ideas and you cannot run the business as you wish.

How much does brand franchising cost?

Franchise costs depend on the field, scale and franchise duration. Here is some information for reference in brand franchising: The franchise fee can range from 160 to 300 million VND per 3 years depending on the field. Depending on how developed the province or city is, the fee may be higher or lower. The consulting and supervision fee from the original brand is about 30 million VND per year, and may be higher for famous or foreign brands. Raw materials are bought from the official brand. This cost can range from tens of millions to hundreds of millions of VND, depending on whether it is a personal brand or a big brand. Machinery, labor and similar costs are also part of the franchise. You will receive a detailed breakdown to discuss and agree on before franchising.

The process of brand franchising

The franchising process follows these steps:

• Carry out the franchise procedures and register with the competent authority.
• Prepare the franchise file using the available forms. The competent authority will provide the procedures for you to prepare and complete.
• Draft the brand transfer terms. Sign the contract and carry out the franchise contract as written.

The franchisor will provide lawyers and authorized persons to support the above work.

What to prepare for brand franchising

To franchise a brand and run it successfully, you should pay attention to the following:

• Study market tastes and trends. Choose business fields with the chance of high returns.
• Choose well-known brands in the field you want to do business in.
• Assess the capital you can put into a franchise business. You will have to pay many costs to invest in this model. Returns are high but there are also risks in franchising. Can your capital cover those risks?
• Choose the business location for the brand you are franchising. It is one of the factors that most affects success in a franchise business.
• Choose a suitable franchise form. There are 4 forms: full franchise and partial franchise, or a franchise with management support or capital investment. Choose the form that fits your business strategy.

Conclusion

Franchising is now one of the best-known ways of doing business. You save time and money on building a system and positioning a brand, and have a higher chance of success under a brand already known in every market. We wish new businesses success with this distinctive business choice! See also: 

• The market analysis process every business should know
• 8 steps to start a successful online business