Packaging a business into a franchise. Typical mistakes when creating a franchise on your own
Package the franchise yourself
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I am a franchising consultant and I develop franchises or, as they say, I package franchises. In this article I will describe what a franchise packaging project consists of. After reading this material, an entrepreneur can get a picture of what exactly needs to be done to package a franchise on their own. I deliberately write in “simple words” format and don’t go into details so that the reader gets a clear picture of the process and doesn’t get distracted by the nuances.
Let us list the main stages of franchise packaging and describe the content of each of them.
Business audit
At this stage, you need to decide why your company needs franchising in general, what goals you want to achieve with this tool, and most importantly, whether franchising is suitable for your business. About the main criteria for franchising a business in. At this same stage, you need to understand what exactly makes your business so successful, what exactly you will transfer to future partners of your franchise as know-how. It would also be good to understand who exactly will become your partner and why they should prefer your project to launching their business and brand from scratch.
Financial model
We sorted out the goals and strategies, determined that the business was profitable and needed in every region, every city. What do you need to start a retail outlet under your franchise? How much to invest, what kind of profit you can expect from working on your franchise. To do this, it is necessary to build a financial model. This is what you will present to franchisees and investors to confirm the performance and sustainability of the business.
Concept development
The financial model shows high profitability. Your franchise is on the list of the most profitable franchises; everyone will want to buy your franchise. But what you want to get as a founder, how you will earn money from the franchise, how you will build a regional policy, what payments your franchise will require must be determined at this stage.
Development of a package of documents
All developed rules, processes, standards must be recorded on paper. In addition, relations with your future partners must be documented by a commercial concession agreement. Typically, the package of documents will contain a brand book to unify all retail outlets of the network, a partner manual to consolidate all franchise standards, a presentation for initial familiarization with potential franchisees, and a financial model that you already have from the point before last.
Selling a franchise
At this stage, you have built two franchising blocks: opening and maintenance; the third point remains - sales. At this stage, you build lead generation and a system for processing incoming applications. You have a packaged franchise and a system for attracting new franchisees. You can launch sales, improve the system and build your franchise network.
As can be seen from the description, your task is to build three franchising blocks: sales, opening, support. You can read more about how to pump up your franchise using the spinner system. This is a constantly repeating conveyor belt, where a potential franchisee submits an application, signs an agreement, opens a retail outlet, and, thanks to proper support, pays back the stated financial sum. model payback period and opens a second point, again returning to the sales stage. If all three steps work correctly, your franchise network will grow quickly.
To develop their business and explore new territories, successful business owners are increasingly resorting to franchising. At the same time, you should understand what the franchise package includes and how to create it correctly so as not to miss small but important details.
Packaging a franchise means selling it as profitably as possible.
General information about packaging
Franchise packaging, in essence, is the creation of a complete package of documents for running a business. Its main task is to transmit complete documentary information to the franchisee. There should be not only economic details with details of marketing and service, but also a description of the appearance of the employees.
When receiving the package, the franchisee must fully understand all the nuances of the purchased partnership. Development is carried out individually for each franchisee, taking into account many factors. This cannot be a standard set of documents.
Package contents
The full package includes 4 groups of documents:
- Agreement. This is a direct legal document that confirms the transaction. It discusses payments - one-time and monthly. The main difficulty is that in our legislation such an agreement is defined as a commercial concession agreement. Such an agreement is regulated by the Civil Code of the Russian Federation.
- Standards. The franchisee must comply with them when organizing a franchise business.
- Direct management of business. This is basically the design of advisory rules with the help of which the user of the partnership agreement can independently manage the work within his business. These documents discuss the style of the premises, the clothing of the staff, as well as all the technical details of production. It is recommended how many hours a day the production should work, with whom to collaborate and what equipment to work on.
- Papers with which the franchisee can sell and promote products during franchising. These are business cards and a business plan with detailed instructions.
It is important that its creation is carried out by an experienced entrepreneur or professional, otherwise you can miss small details that will subsequently affect the profitability of the franchisee’s business. This is especially true in cases where the franchise is sold to inexperienced businessmen.
Also, the inner packaging includes a detailed description of the desired premises, with all technical characteristics and requirements for its location. What a potential employee should be like and what he must be trained on - this information should also be included in the packaging.
The stages of creating a franchise include having a presentation. It allows the future buyer to realize all the benefits of the product. Franchisees need to be interested in your brand and business concept. He needs to be convinced that, subject to certain requirements, he will receive a ready-made working model of a profitable business.
Franchising provides enormous opportunities for the growth of a large number of businesses. But this is a tool that works well only with the right approach. While working in the franchise packaging and sales industry, I spoke with hundreds of entrepreneurs who wanted to package their franchises. I maintain relationships not only with entrepreneurs who ordered packaging from us, but also with people who decided to pack themselves. Over the years, I have seen their typical mistakes and misconceptions, which lead to completely unpleasant consequences. Next, I described for you these mistakes that novice franchisors make due to inexperience, and gave options for their solutions.
Error #1 Lack of preliminary analytics by region.
Because of this error, the franchisor is faced with a lack of market for the partner’s activities: either due to lack of demand, or due to strong competition in the region. Often, when packaging a franchise on their own or with beginning consultants, entrepreneurs neglect to search for information about their niche in other regions. This is not surprising, because most often this information is not available in open sources, and searching and processing it requires a staff of professional analysts.
A lot of important information is left behind, such as the presence of competitors (with their strengths and weaknesses), the financial capabilities of potential customers, the presence or absence of demand for the final product or service, and much more. Starting to sell your franchise without analysis is as irresponsible as going on a long voyage without a compass. This can lead to incorrect territorial division (partners will be cramped in the market) or to the launch of franchise points in cities where there is simply no market for a scalable business.
For most companies, having an analytical department is not an urgent need, so I recommend contacting specialized companies that will help make the development of your business as meaningful as possible.
Mistake #2 Unpreparedness of the business for franchise development or lack thereof.
The franchising market continues to grow, the rate fluctuates at the level of 10-30% annually, and a situation is emerging where the demand for franchises, which is measured monthly by tens of thousands of queries in Yandex and Google, many times exceeds the supply. This means that potential franchisees are ready to buy almost everything that is on the market. Low-quality offers appear from unscrupulous people or simply from entrepreneurs without the proper experience. Accordingly, the survival rate of businesses opened under such franchises cannot be good. Yes, today there are high-quality franchises that have survival rates of 70 and even 90%. But this is rare. Basically, more than half of franchisees are disappointed in their “senior partners” and change their sign the very next year. And this, one might say, is a good option. A more radical, but unfortunately probable outcome of events is that franchisees lose money and franchisors get sued.
To avoid this fate, you need to analyze your business for franchisability and assess how scalable the tools that you plan to transfer to partners in the future are. You definitely need to think about how ready the team is for such a challenge! Unfortunately, we are rarely honest with ourselves and it is extremely difficult for us to give ourselves or our business an accurate assessment.
I recommend that before launching a franchise, you seek a preliminary assessment either from an experienced franchise packaging specialist or from an entrepreneur who has already built a successfully operating franchise network.
Mistake #3 Lack of portrait desired by the franchisee
One of the risks of developing your own franchise network is the temptation to enter into an agreement with the “wrong” partner due to the desire for short-term profit or simply due to lack of experience. You need to understand that not everyone who wants to be your franchisee will be suitable as your partner. If the wrong people are in the boat with you, there is a high probability that your franchise network will stop developing, even if the documents themselves are perfectly packaged.
In our practice, there have been cases when we had to refuse a potential franchisee. Now it seems to me obvious and absolutely correct that we told the buyer “no,” although at that moment there were doubts. In that case, our franchisee wanted to become a frankly emotionally incontinent person. But there are also less obvious situations. For example, when the franchisee looks adequate, but is not sufficiently prepared to run the business on his own.
What to do in this situation? First, when creating your franchise, keep a portrait of “your partner” in mind. And not only his professional level, but also his psychotype. After all, it’s one thing to run a high-energy business of hipster coffee shops, and another thing to build production. However, the franchise must be well packaged in order to level out the difference in the level of training of the franchisee. You should have a clear plan for what functions you reserve for yourself as a senior partner and what degree of freedom you give to franchisees.
Mistake #4 Wrong model of communication with franchisees
Many entrepreneurs who are planning to package a franchise have little idea of how they will build communications with the franchisee after concluding an agreement. And you can communicate in different ways, I distinguish two models:
- “We are a help desk” is a model that is often found among new franchisors. But you need to understand that you won’t be able to hand over a package of instructions and a brand book once and then not show any initiative again. This is a losing plan: contact with the partner is lost, there are no common goals. Even if the instructions are applied and the technology works, then the partner will still have the feeling that he is always not being given something and is left to the mercy of fate.
- “Coaching” is a more suitable model. You know what your business should look like in an exemplary version, so create the most simple but detailed vision of your business for your partners. Pull up, set plans and control franchisees. Create healthy competition between your partners and exchange practices. Insure your partner, provide him with support - not only at the start, but throughout your work together.
Mistake #5 Insufficient attention to the legal part
When packaging a franchise, entrepreneurs usually pay attention to preparing marketing materials, writing scripts for franchise sales managers and describing business processes. Responsibility for the legal part is usually transferred to a lawyer you know, who most likely does not have specialized experience. A lawyer simply downloads a contract template from the Internet, slightly adjusts it and sends this “work” to life. Although the legal block is fraught with the greatest number of risks. The franchisor can be great, try and do everything for the franchisee, but if he is not protected by papers, then there will be people who will take advantage of this. Here the recommendation is clear: contact lawyers who specialize in the rules of law used in franchising (license or commercial concession), who have experience in protecting intellectual property rights and have successful judicial practice in this area. I would like to add that our company Franchising5 not only provides franchise packaging services, but also helps companies packaged with us in legal proceedings if they arise.
In the end, I would like to add that franchising is a tool that carries enormous opportunities; businesses that take advantage of it can grow many times over if the work within the franchise packaging is done correctly. Doing this work with professionals means saving a lot of time, resources and money. The situation on the market is quite favorable; the market has accumulated many experiences of successes and failures. Find those who have managed to accumulate this experience, and begin your scaling journey with them.
Vladimir Bushuev, CEO of VR solutions development company The Psycho, tells the main things that are important to know in order to package your business into a franchise
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Vladimir Bushuev, The Psycho
What is franchising and who buys it?
Franchising is a type of partnership that involves the sale of the right to conduct business according to a certain business model. For its use, the franchisee (buyer) pays a fixed lump-sum fee, as well as royalties for the right to work under the brand and business support, and remuneration for the use of licenses and equipment. If you already have a business with a finished product that can be replicated, with clearly defined goals and objectives, this is the first step towards packaging it as a franchise. The next step is to figure out what terms you want to sell to potential franchisees.
Starting a new business from scratch is always associated with financial risks. In addition, often novice entrepreneurs lack experience: to implement a business project, they need deep knowledge in the field of management, marketing, advertising, and in addition to this, a sober assessment of the features of the project being created. Therefore, buying a franchise is an excellent opportunity to avoid the “stuffed up bumps” and improve your business skills.
What can be sold as a franchise?
The transfer of rights to business property is the main feature of a franchise agreement. However, the franchise complex can be presented in different forms.
- Manufacturing or industrial franchising
Industrial franchises account for less than 1% of the total volume of franchises on the market. The brand owner allows the franchise buyer to produce and sell goods or provide services under his brand in accordance with his quality requirements. Companies that offer industrial franchises include Nestle and Pepsi Cola.
- Distribution franchising
In this case, the franchisee receives the right to distribute products under the company's official brand based on the appropriate product distribution processes. For example, Michelin tires.
- Franchising contracts for services
This type of cooperation involves the transfer of rights to use technologies, standards and management models. This is the most common option in the food service industry. This is how McDonalds, Burger King and Pizza Hut work. Such companies have firmly established themselves in the market, instilling confidence in potential franchisees with the constant presence of a huge number of guests at their locations. To purchase such a franchise, you only need a monetary investment, and you can start a business.
In addition to traditional franchising businesses such as retail and HoReCa, new players are entering the market. Among them are more and more technology companies, including those in the field of virtual reality (VR), which is quickly gaining popularity in the gaming, educational, medical and other industries. For example, we are already launching entertainment VR projects as a franchise - quests, games and shooters, etc.
What does it take to package a business into a franchise?
To understand how much money is needed to package a business into a franchise, it is very important to assess the scope of activity and determine the profitability of the business in other cities and regions. This will answer the question about the packaging budget and the implementation period. Each business will have its own parameters. For example, it cost us approximately 500,000 thousand rubles with an average time of about 3-4 months. In the case of The Psycho, the franchise includes the transfer of a turnkey project - this means that we transfer technology and equipment (VR tracking system, costumes, game development), and the franchisee remains the business part and maintaining the equipment in proper condition.
Unique product offer
Formulate a unique product offering that will clearly show what clients or customers value in the company. At this stage, you can conduct a survey among existing customers and find out what is most important to them in the work of the company or the functioning of the product. Based on the data obtained, you can select the TOP 7 characteristics and arrange them in order of importance. By comparing the results obtained for your product with similar products from your main competitors, you will identify the advantages. This will be your unique product offering.
Separately analyze the customer responses that bring the most profit to the company. This data will help not only sell the franchise, but also build a competent advertising campaign. Like all visual materials, advertising must be in sync with the corporate identity.
Corporate identity and trademark
To conclude a franchise agreement, a registered trademark is required. It is registered for 10 years, after which this period must be extended. Therefore, at this stage it is necessary to immediately form a visual image of the company by developing a general brand concept, in accordance with which all visual materials, including the trademark, will be designed.
Elements of corporate style should be easy to read from the logo, website, employee business cards, office interior, and souvenirs. By designing fonts, corporate colors, and unifying visual materials across your website, brochures, or business cards, you deliver a message about your company. In addition, your franchisee will have ready-made corporate style guides, which will eliminate errors, distortion, and incorrect use of its elements.
Business plan
Potential franchise buyers want to see numbers: expenses, income, forecasts. To successfully sell franchises, you need to present the company’s development strategy, that is, a business plan, and current results. The business plan includes data on the prospects for the company’s activities in market conditions, the most complete information about the sales market, and legislative acts that in one way or another may affect the sales situation. It should also contain a marketing kit and clearly outline the business strategy. As a rule, the marketing plan also includes the company's mission and goals, strategic planning, description of the product or service and requirements for consumer properties, competitive advantages, pricing policy, sales promotion methods, marketing budget formation and much more.
Product promotion
At the stage of product promotion, it is important to participate in exhibitions, forums and conferences, receive certificates and awards. It is advisable to include letters of gratitude and reviews, “Question and Answer” pages, and copies of articles confirming mentions of the company in the media in the marketing kit. The better you promote your product and company, the easier it will be to find franchisees, and the more profitable it will be for you to sell a franchise.
Why take money
As a rule, the price of a franchise consists of payments of various types: these can be lump sum payments and royalties, as well as remuneration for the use of licenses and equipment. The composition of the franchise price depends on the field of activity.
A lump sum fee is a fixed one-time amount that a franchisee pays to the franchisor under an agreement, and a royalty is a type of licensing fee, periodic compensation, usually monetary, for the use of patents, copyrights, natural resources and other types of property.
If the franchisor has the opportunity to set an inflated or simply high royalty rate, you can refuse the lump sum payment. In the future, the royalty will bring income an order of magnitude higher and will be an excellent advertisement for potential buyers: for the franchisee, refusing a lump sum payment is beneficial, because otherwise he will have to pay a large sum of money at a time.
Search for franchisees
Having packaged the business according to the necessary parameters, you can begin searching for potential franchisees. It is important to remember that not only the franchisee chooses you, but you also choose him. Try to get to know your potential partner, his expectations and vision for the business as best as possible, and critically evaluate how your goals and objectives align. To find franchisees, we use advertising, social networks, as well as already established contacts and partners.
We often receive questions about franchise packaging in large numbers, and I decided to collect the most common questions and answers to them in one post. Businessmen very often do not understand what it means to package a franchise, and this is a really big problem. By the way, I recently did an audit of all my competitors in franchise packaging, and I can safely say that most of the “professional” packaging companies also do not understand what it means to package a franchise, and this is sad.
1. What does it mean to package a franchise?
— For some reason, many people think that packaging a franchise means making a website and presentation for selling the franchise, but this is fundamentally wrong. To package a franchise means to completely write down your business and your business processes on paper, and make a detailed guide to starting and running your business, taking into account all the nuances. Having taken the heart of your franchise (your franchise package), a person must understand what to do next and, without asking unnecessary questions, launch the same exact business as yours.
2. Is it possible to sell a franchise without a franchise package?
— Some “businessmen” do this, of course, but the results are disastrous. After 3-5 sold franchises, you will either be shocked by the fact that you will constantly need to answer questions from franchisees, and you will be “like a squirrel in a wheel” and will not have any desire to sell the franchise further, or you will simply give up on your franchisees and you will continue to sell the franchise and not provide any support, which will entail a damaged reputation, lawsuits, and refunds. This is usually what happens.
3. Can I package the franchise myself?
— In our company, the following people work on franchise packaging: lawyer, copywriter, marketer, packager, designer, financier + sometimes third-party specialists are involved. Can you provide your franchise with these resources on your own? Even if the answer is yes, it is unlikely that you will find such specialists with experience in packaging franchises, so it will take a huge amount of time, and the result will be in question.
4. What does the French package consist of?
— As a rule, a French package consists of many blocks in which the nuances of running a business are described in detail: an introduction block (a prescribed business model, a step-by-step plan for starting a business, an introduction to the nuances of business); personnel block (recruitment and personnel management guidelines); block of the place of business (all the nuances of selection, design, arrangement, and security of the premises); marketing block (client attraction); sales block (detailed sales guide); legal block (all legal nuances of doing business from registration of a legal entity to the smallest legal details); product block (a detailed guide to the company’s product) and other blocks depending on the specifics of the business.
5. Why are the services of franchise packaging companies expensive?
- It depends on what you compare it to. If you compare the cost of packaging a franchise with the amount of money that you will ultimately lose when launching a low-quality franchise, then the prices on the franchise packaging market will seem ridiculous. If your franchise is of poor quality, then courts will begin, money will be returned, or you will hit a ceiling and will not be able to take on new franchisees. By purchasing a package once, you get a quality product that will bring you money for many years. A whole staff of employees works on the packaging of the franchise, so you need to pay for quality work.
6. Will they buy my franchise if I don’t have a well-known brand?
— An absurd question, but it is also asked by many people. How can your brand become famous if you don’t sell a franchise? Will you open the points yourself? Yes, it’s possible, but how much money and time will it take for such development? Life may not be enough. Most companies become famous thanks to franchising. So don’t worry, if you have a good business model, your franchise will be 100% bought.
7. How can I think through franchising so that I am paid not only a lump sum fee, but also regularly paid royalties?
— Give value to your franchisees constantly. What can be meant by value? Everything that will make the work of your franchisees easier. For example, Instagram works great in your business and the main flow of clients comes through it, but you have an SMM specialist on your staff who deals only with Instagram. For a small supplement to his salary, give him the promotion of franchisee accounts so that they get results through you. For this they will pay royalties. The task of any franchise network is to come up with 5-7 such features, from which there will be no point in leaving and it will be more profitable for your franchisees to pay royalties.
If you have questions about franchise packaging, please send them to us by email [email protected] or leave a request for a free consultation on our website franchise-agency.ru
If you want to pack and sell your franchise in a high-quality manner, then contact the professionals -
