Well-known companies are powered by their names and reputations. When people walk into a Pizza Hut in Tokyo, Rome, or Miami, they know exactly what they are getting. Through franchising, an investor   can make use of this brand power by opening a Pizza Hut of his or her own. The risk is low, and the rewards can be big. No wonder franchising is such a successful business model. Franchising had been around for more than 100 years, but its popularity took off in the 1950s. Leading the trend were fast food restaurant like McDonald's. These days, there are franchises in more than eighty-five industries, including dry cleaning, hotels and supermarkets. It's a very big business. In the US, there are some 760,000 franchises, totaling more than $1.5 trillion in yearly revenues (income). There are two sides in a franchise: the franchisor--the owner of the business system and the franchisee--the person who licenses the system. After signing a "franchise agreement", the franchisee pays a fee. He or she also pays for equipment, supplies, and, if necessary, building costs. The total investment usually ranges from $10,000 to $1,000,000. After the business opens, the franchisee also pays a percentage of sales revenues--called a royalty--to the franchisor. Marking fees must also be paid. In return, the franchisee receives many benefits. Training is among the most common ones. It includes everything from dealing with customers to understanding the company's standards. The franchisor also handles advertising. On top of that, there's the benefit of the brand reputation that the company has built up. All of these benefits make the risk of opening a franchise much smaller than that of starting a business from scratch. However, a franchise can also have drawbacks. If a customer at a single restaurant gets sick, it may hurt every franchise in the system. Running a franchise also means closely following the company's standards. So, one has to give up a degree of independence. You have to do things their way and trust that the system will work. If you want to earn a lot of money from the business, you have to work hard. Also, remember that the monthly royalty must be paid, even if you are losing money. However, there are thousands of opportunities in franchising. They will surely grow as brand recognition becomes more important in the global economy . What is the most important factor to make a franchise successful?
Brand power. Agreement. Training. Royalty.