Definition And Network Franchise Structure

Traditional franchises are generally used to extend their products by means of extensive distribution.

Companies like McDonald's or Marriott also use a franchise system to expand their brand by allowing others to distribute their products.

This is different from traditional franchising and is called Business Format Franchising.

In general, a franchise is an employment contract between the franchisor (franchisor) and the recipient (franchisee).

Franchise business is usually done by exchanging money with an agreement to run the related business within a certain period of time. Franchisors and franchisees share the same brand but are not related to each other.

Franchisee sells products or services in accordance with the provisions of the franchisor, while the franchisor busy floating franchise business.

Franchising becomes one of the interesting business solutions and the good news has many alternative options in the franchising business.

But before you start a franchise business, I will help you familiarize yourself with the network structure that is commonly used in today's franchise business:

Single-Unit Franchise (Direct-Unit Franchise)

Single-Unit Franchise or commonly called direct-unit franchise is a franchise, where the franchise invests his money to operate a business location. This is the oldest and simplest type of franchise.

Managing a single franchise location is a classic franchise and is still the most common form.

Although simple and commonly used, this type of franchise has several disadvantages to the franchisor, among others:

Because each location requires a new franchise, the development of the franchise system is slower than multi-unit franchising.

Costs to support the franchise system tend to be more expensive because each unit must be supported individually.

The growing number of businesses and franchises that must be managed, where each franchise may vary so as to have a higher risk than multi-unit franchising.


Multi-unit Franchise (Area Developers)

Multi-unit development is a form of franchise that is also commonly used. It is estimated that more than 50% of franchise locations are owned by owners from multiple locations at once.

A multi-unit franchise allows multi-unit developers to have multiple locations with different franchises in the same area and within a certain timeframe. However, multi-unit developers are also given the obligation to add locations according to the development schedule.

If the multi-unit developer fails to meet the development schedule, the franchisor has the right to cancel the development agreement. Please note the development agreement is different from the franchise agreement.

The advantages of this type of franchise for both parties (franchisor and multi-unit franchisee):

>The per-unit cost basis for the franchisor to find franchisees is smaller because the developer opens more than one location.

>Because the number of franchisees is less, the cost to support the franchise system is smaller.

>Multi-unit developers allow the franchisor to have more control and development plans.

>Multi-unit developers can reach mass-market mass faster than the franchisors do on single-unit.

>Multi-unit developers can swap employees between locations when needed, resulting in better employee utilization.

>Multi-unit developers can also combine businesses from multiple locations to improve efficiency and minimize costs.

>Multi-unit developers have the right to combine purchases to minimize raw material costs and can have storage centers or warehouses to minimize their retail store footprint.


Master Franchise

A master franchise is similar to multi-unit development but has one significant difference.

In the master franchise agreement, in addition to having the right and obligation to open and operate multiple franchise locations, the master franchisee also has the right and obligation to offer and sell to others interested in becoming a franchise.

In other words, the master franchisee becomes a franchisor in a particular location.

Master franchisees are required to have at least one franchise location but also be allowed to sell the franchise at a certain point if they so choose.

When signing the agreement, the master franchisee will pay the franchise fee to the franchisor. Master franchisee then earn profits by sharing royalties from the sale of franchise units with the franchisor.

This franchise structure is the most complex because of the division of franchisor responsibilities with the master franchisee.

Therefore, this type of franchise is less popular in the United States but is often used to open franchises in other countries.


Area representatives

The area relations representatives are again similar to the master franchise but have a prominent difference.

The representative area does not make any agreement with the franchisee of each unit, as the franchisee directly agrees with the franchisor.

Thus, the area representative only acts as a franchise seller or franchisor support agent in a particular area.


Area representative shall pay a fee to the franchisor to enter the franchise relationship and shall be obligated to divide the franchise royalties it receives from the franchise.

Area representatives also agree to an agreement to open a number of franchise units within a period of time and within certain territorial coverage.

Thus, the difference between the master franchisee and the representative area is only the master franchisee signing the agreement with the franchisee unit, while the representative area is not.



Other Franchise Options

In addition to the franchise structure mentioned earlier, there are several other structures that are still rarely used, among others:



# 1 Conversion Franchise

The relationship between independent operators that already exist in business scopes similar to franchises. Where a business owner signs an agreement to turn his business into a franchise business.



# 2 Non-traditional Locations

It is a type of location where the customer is acquired from other business activities. Examples of such a burger seller on the football field. Few consumers who deliberately go to the ball field to buy a burger, but will sell well when there is a football match.

This franchise structure is commonly found in public places such as airports, stations, hospitals, universities, sports stadiums, food courts, and others.


# 3 Existing Franchise

Is a method to buy a pre-existing franchise location. Or in other words, can be called buying a used franchise.