What is a franchise?
A franchise is an agreement between 2 legally independent parties wherein one party (the franchisor) grants to the other party (franchise owner) the rights to market/sell a particular product/service using the franchisor’s trademark and logo. The franchisor can also provide the operating methods, training and ongoing support to the franchise owner depending on the type of franchise. In exchange the franchise owner pays the franchisor fees for this right.
The Valenta franchise model is quite unique wherein the franchise owner focuses exclusively on growing their business while leaving all operations to us.
Types of Franchises
While there are numerous variations of franchises, the 2 most popular ones are:
Product Distribution Franchise:
A supplier-dealer relationship, product distribution franchises simply sell the products of the franchisor in their area of operation. The franchisor usually only licenses their trademark and logo but does not provide the whole system of running the business. These franchises can usually be found in retail, gasoline, computers, etc.
Business Format Franchises:
The most common type of franchises today, business format franchises typically have the franchisor providing the entire business format to their franchises. This includes their trademarks, logo, marketing plan and operations manual. This type of franchise can be found in a number of industries including fast food, restaurants, business services, education, etc.
The Valenta Franchise is a business format hybrid where our franchise owners sell our outsourced services and we then take care of all operations thereafter.
Other types of franchises include manufacturing franchises, job franchises, investment franchise, conversion franchise, management franchise, etc.
Due to the differences between franchisors, investment levels and industries, there are a number of franchise arrangements available for various franchises.
Single Unit (Direct Unit) Franchise:
The most common type, in a single unit franchise the franchise owner is given the rights to start and operate 1 franchise unit. The franchise owner may however be able to purchase additional single unit franchises further down the road from the franchisor depending on their franchise agreement. In this case it will become a multiple, single unit franchise agreement.
If the franchise owner is given permission to build and operate more than one franchise then it is considered a multi-unit franchise. Common types of multi-unit franchises include:
- Area Development Franchise where the franchise owner has the right to open more than one unit, in a specific area and in a specific timeframe.
- Master Franchise wherein the franchise owner, in addition to the rights of an area development franchise, can sell franchises to other people within a specific territory (sub-franchises). Here the franchise owner takes on the roles and responsibilities of the franchisor in that territory.
- Area Representative Franchise where the franchise owner purchases the rights to sell and service unit franchises in a particular territory in exchange for a percentage of the initial fees and ongoing fees paid to the franchisor. However, the franchise owner here does not directly sign-up the unit franchises but instead receives a sales commission from the franchisor on the successful sale of a unit franchise.
Currently, Valenta offers only single unit franchises but franchise owners can buy multiple single unit franchises if they wish to increase their area of operations.
Alternatives to Franchising
There is a contractual relationship with the supplier in a distributorship wherein products are bought in bulk from the supplier and are then sold in smaller units. The distributor leverages their knowledge of local markets to successfully sell the products. The distributor usually will work with more than one company and sell numerous products and does not receive any additional support or training from the supplier.
Depending on the level of control exerted by a franchisor/supplier, a franchise that is given a lot of leeway can resemble a distributorship and vice versa.
In a licensing agreement, the licensee pays for the right to use a particular trademark. The difference here from a franchise is that a franchisor will be more involved with the franchisor owner’s business operations whereas the licensors merely supervises the use of the license and collects royalties.
Owning a Franchise
- Own your own business but with assistance from a successful company
- Certain level of independence in operating your business
- Established product or service which can provide pre-sold customer base
- Increased success rates and business growth as you are selling an established product/service
- Important pre-opening support in terms of site selection, design and construction, training, financing, etc.
- Critical ongoing support in terms of marketing, supervision and management support, operational assistance, access to bulk purchasing, etc.
- No complete independence as the franchise owner must follow operational guidelines set by the franchisor
- On-going royalties and advertising fees in addition to initial fees
- Needs careful balance of restrictions and support from the franchisor and the franchise owner’s ability to run the franchise
- Unforeseen issues that plague the franchisor can negatively affect the franchise
- Franchise agreement durations are limited and renewals are completely dictated by the franchisor leading to uncertainties