The two golden rules of franchising
by
Norton Rose
The first golden rule of franchising is that the business model must ensure that franchisees will make an adequate return on their investment. Unsuccessful franchisees will fail to pay their ongoing royalties and quite possibly take legal action against the franchisor to recover their losses. Inadequate returns will make it difficult to attract quality franchisees.
The second golden rule of franchising is that the network must generate sufficient profit for franchisor to make the exercise worthwhile. There is no point having a large network of successful franchisees if the revenue stream generated from ongoing fees is insufficient to provide an adequate return for the franchisor.
The franchisor’s revenue should be primarily dependent on continuing royalties which are typically paid on the franchisee’s gross sales and not from initial franchise fees. The royalty is generally regarded as the franchisor’s primary profit centre although it is, of course, dedicated in part to servicing the franchisee network and developing the system.
See the running a franchise and buying a franchise pages for further assistance.
The article was created by Deacons and appears courtesy of Austrade . 27.06.2007
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