Loading...
Articles

Franchisor and Franchisee

CApture3Franchising is a relatively new concept in the Indian Business Environment. Even though it is a very easy concept, some people find it difficult to understand the details of Franchising.

So here, we are trying to explain the basic ingredients of this concept through the old age way of story telling.

Once upon a time, there was a small town called “RamGarh.” There were many grocery stores in the local market of RamGarh, but for some weird reason one of themcalled “Govind ki dukaan” was the most popular. All the other shopkeepers envied Govind. They all had the same goods that Govind offered in his shop, but they did not have Govind’s most valuable asset, his goodwill.

One day Govind was in a fix. He was no more satisfied with the one shop that he had. He wanted to expand his business. Like any other businessman, he desired to earn more profits. Unfortunately, he did not have the amount of capital required for this purpose.

To Govind’s relief one of his distant cousins named Raju paid him a visit. Raju intended to open his own grocery store in the area. He had all the money needed to start the venture but he did not know how to go about it.  He was afraid of all the existent competition in the market.

After hours of discussion, the two brothers concluded that they both could work together through the business model of Franchising.

Govind had a well-established name in the market. He was a brand, and he was willing to share it with Raju. Raju’s shop was also to be called “Govind ki dukaan.” Govind set some rules for Raju;he wanted him to follow each one of them so that the customers accept the new shop gracefully. Raju’s shop was to function exactly like Govinds. No de-routes were allowed. For this help Raju had to give Govind a one-time fees and a regular share from his profits.

Raju on the other hand knew that establishing his own worth in the already competitive market would be challenging in a short time. Moreover, Govind who was already experienced in this business was guiding him. The main motive by which Raju wanted to start his own business was to earn money and that purpose was looking like a fruitful reality.

Let us now see what both Govind and Raju individually earned from this agreement.

Govind

He now earns more profits through the profit share from Raju’s shop.

  1. In public eyes, he now has two shops.
  2. His business has expanded without him having to pay an extra penny.
  3. In case the business ever suffers from loses Govind will be at a lesser risk because he did not invest through money in the business.
  4. Having two shops in the market has further enhanced Govind’s goodwill in the market.

Raju

  1. Raju has access to a well-established brand. He had to invest no amount for the advertising of his shop.
  2. He does not really have to worry about how to function the business because Govind already set the rules.
  3. He earns more profits because the competition is practically less for him.

In the above case, Govind was a franchisor and Raju was a franchisee. They could have been into any sort of business activity but the result and the functioning would have been very much the same.

We hope that Govind and Raju were of some help to you.

Happy franchisezing

 

Leave a Reply

Your email address will not be published. Required fields are marked *