How to create a successful franchise from scratch

Creating a franchise from scratch requires study, dedication, passion, and hard work. Alongside the skills and expertise of one or more consultants who can guide you through this world full of opportunities, but also complex and full of pitfalls, especially for a newcomer.

Indeed, there are many elements to consider and develop: from the brand to the business plan, from the contract to the operational manual, to growth strategies.

Let’s explore them.

How to Create a Franchising Brand

Creating a franchise from scratch requires study, dedication, passion, and hard work. Alongside the skills and expertise of one or more consultants who can guide you through this world full of opportunities, but also complex and full of pitfalls, especially for a newcomer.

Indeed, there are many elements to consider and develop: from the brand to the business plan, from the contract to the operational manual, to growth strategies.

Let’s explore them.

How to Create a Franchising Brand

Your franchising brand is crucial. You must create it, make it known to potential affiliates (and customers), and protect it both legally and from potential reputational damage caused by the careless management of a franchisee.

In an affiliate network, you must licence your brand to future affiliates.

To achieve this goal, you must first register it with the Chamber of Commerce of the city where you operate or with the Patents and Trademarks Office. If you need to register it internationally, you can turn to the European Union Intellectual Property Office (EUIPO) for Europe and to the World Intellectual Property Organization (WIPO) through the Chamber of Commerce for the rest of the world.

But the brand, or better yet the Brand, is not just a set of words, colors, and designs that you register to prevent it from being stolen. It’s your identity: if your business had a body, the Brand would be its face.

Through it, you must inspire, communicate, and connect with affiliates and customers.

Your Brand communicates your values and your mission. And starting from your franchising brand, you will shape every aspect of your chain: from employee behavior to the type of products you offer, to the organization and colors of the locations.

So how do you design a brand that is recognizable and professional?

Thanks to three steps:

1. Research on Your Target Audience: The first step is to identify the people you are targeting, starting with age (Are they teenagers? Around 30 years old? Or nearing retirement?), moving on to their daily activities (what kind of work they do and if they have children, for example), and ending with their passions and interests. This way, you can shape your Brand, and therefore your campaigns, based on the needs, characteristics, and language of the target. You must also clearly distinguish at least two targets to address: the audience of potential customers and that of potential affiliates, to whom you will address more institutional communication.
2. Studying and Understanding the Focus of Your Network: Here you need to analyse the companies and chains already operating in your sector. What do they do well and what do they do wrong? How can you improve? How can you stand out? Choose your market positioning and align your Brand’s values accordingly. This is a first step to take if you want to create a solid franchising network.
3. The Willingness to be Disruptive: To stand out, choose a brand that has prior rights, meaning it is not similar to already registered brands, and is distinctive, which in this case does not mean original, but rather disconnected from your products/services. What does it mean? Think of Apple, which has an apple as a brand, even though it sells something completely different. Distinctiveness is a characteristic of the strongest brands on the market.

Would you like to create a brand with these characteristics and register it safely? Learn more about the topic and request specific advice: CONTACT US

How to Create a Franchising Project – 5 Steps to Create a Solid Commercial Network

The brand is just one of the distinctive elements for creating a franchise: let’s discover the other steps to follow.

1. The elements of the perfect business plan

The Elements of the Perfect Business Plan: The Business Plan is an essential document for several reasons. For you, to have a clear direction for your business, where you want to go and how. For potential investors, who will want reassurances about your intentions before betting on your ideas. For affiliates, who will have an extra guide to make their point of sale successful.

How do you write the perfect business plan? The main points are these five.

1. Executive Summary: It is the introduction to the Plan, where you summarize objectives, market data, business model, and profit margins.
2. Market Analysis: Where you focus on demand and competitors.
3. Competitive Advantage: Where, talking about your competitive advantage, you try to answer the question “Why should we choose you?”, considering different answers for customers, investors, and potential affiliates.
4. Marketing: Where you illustrate the promotion channels, the budget to allocate to the activity, and the reasons behind the choices you want to make.
5. Financial Analysis: Here, with data and statistics, you try to demonstrate which economic objectives you intend to achieve and how.

Would you like to know more? Learn more here: Feasibility study of a franchising project

2. Franchising contract: define every detail

• The Franchising Contract is the heart of the relationship between the Franchisor and its affiliates, where mutual relationships, rights and duties, and possible legal consequences of actions not compliant with the agreement are clearly defined.

It happens that, in a new chain, the Franchising Contract is literally copied and pasted from other chains, only changing the references to the parties involved: nothing could be more wrong.

Every franchising is unique and should provide specific rules to avoid legal disputes, which often end in favour of the franchisee.

What are the elements of the Franchising Contract? Here is a (non-exhaustive) list:

• Duration;
• Obligations of the parties;
• Royalties and Fees;
• Penalties for non-compliance;
• Non-competition clause;
• Expenses and investments of the two parties;
• Agreed minimum turnover;
• Training and transfer of know-how;
• Territorial exclusivity;
• Brand protection;
• Compliance with privacy regulations;
• Jurisdiction for any judicial or arbitration proceedings.

This is a non-exhaustive list, as mentioned. To learn more or request advice, click here: franchise Contract | Franchising legal advice

3. Fee d’ingresso e Royalty: cosa sono e come si calcolano

The first step here is to understand the difference between the two terms, which are often confused.

The fee – an English term that can mean tax, quota, honorarium – is the fee that the affiliate pays at the beginning of the relationship to access the network. In exchange for the fee, he obtains a series of services: training, know-how, assistance and so on.

Royalties, on the other hand, are a continuous expense, which the affiliate gives to the Franchisor during the collaboration relationship.

They are generally linked to the turnover of the individual point of sale. How are fees and royalties calculated? Obviously it depends on many aspects. First of all, from the costs for the Franchisor, who must take into account his own expenditure to train the franchisee, design the layout of the new point of sale, the cost of marketing analyses, etc.

As a Franchisor you have two paths to take. The first is to analyze the market and understand if you can offer more advantageous conditions than your competitors.

The second is to ask for Fees and Royalties similar to those on the market, but offering more advantageous services and training.

Do you want to know more about calculating fees and royalties? Click here: Fee and Royalty

4. A court-proof Operations Manual

The Operations Manual is your secret weapon, it must be TOP to create a successful franchise.

That is, a document that contains all the useful strategies to make each new point of sale in your chain successful.

It can be seen as an extension of the Franchising Contract (and in fact it is delivered only after signing, to avoid plagiarism).

In Franchising Development we talk about the manual as a document with legal power extension, which helps you extend your legal protection beyond the contract.

In fact, the document contains all the plans for transferring your know-how to the affiliate: this will allow you to avoid any disputes.

What does the Operation Manual contain? It is the answer to the most common questions from your affiliates:

• How to manage the point of sale?
• How to choose suppliers in line with the chain’s standards?
• How to relate to employees?
• What activities should be implemented to promote the business and retain customers?

5. How to start finding affiliates

Competence, study and a lot of commitment: these are the only “secrets” to creating an active and profitable franchising chain.

In fact, there are no magic formulas that can resolve the situation, but only a lot of work and perhaps the help of those who have already faced this path on other occasions.

It all starts from the creation of an appealing affiliation proposal, based on concrete and reliable numbers, but also capable of motivating and exciting the potential franchisee.

Everything is based on your value proposition, i.e. why the affiliate should choose your chain. Affiliate proposals that work have at least these four elements in common:

1. They are extremely clear and immediate to understand;
2. They offer innovative and trendy models or products/services;
3. They are competitive compared to competitors;
4. They provide for a rapid and certain recovery of the capital invested.

To present your offer, you will then need to establish an adequate budget and the right marketing mix, between online and offline channels, to more effectively reach your target audience.

Want to learn more about how to find new affiliates? Read our in-depth analysis: Strategies for developing franchise networks and searching for affiliates

How much do you earn with a franchising network?

It is impossible to establish a certain numerical figure a priori for any type of chain, in any sector.

However, we can understand how a functioning franchise makes money and at what costs. These aspects are contained in a document called an economic feasibility study, a document which must reflect what we have already seen for the Business Plan.

This study represents a realistic analysis of the costs and potential revenues of your franchising project.

Let’s start from the first: what are the expenses to be faced, especially at the start of the business?

• Consultancy: lawyers, franchising consultants, network developers, Master Franchisee (a figure we will look into shortly) and all those who can accompany you in the creation of a robust, legally unassailable and profitable network.
• Marketing and communication: take into account the budget to be allocated to communication activities, to convince potential affiliates of the goodness of your value proposition.
• Finalization costs: the leads you have attracted with communication activities will then have to be convinced by a salesperson (whether external or internal to your company), to successfully conclude the negotiation.

How does a franchising network make money?

• Fees and Royalties: we have already discussed them, they are the main sources of income for the Franchisor. In summary, the Fees are a one-off payment that the franchisee pays at the beginning of the collaboration relationship. Royalties, on the other hand, are paid periodically and calculated as a percentage of the sales point’s turnover.
• Additional services: another source of revenue can derive from set-up services, in which the parent company also sets up the new franchisee’s point of sale, obviously in exchange for a financial consideration; or from marketing services (graphic work, packaging, social media channels and budgets, etc.) to be made available to franchisees.

How to expand your franchising network abroad?

Have you already gone through all the steps we’ve seen so far and established a successful national network? Now it’s time to think about how to expand your franchising network abroad.

There are two main ways to tackle this important step.

The first involves the involvement of an Italian or local franchisor, with the necessary skills to venture into the chosen country, with the aim of opening new direct sales points. Subsequently, an expansion phase will be started which aims to attract new affiliates originating from the country where you are investing.

The second method, however, is to involve a Master Franchisee, i.e. a third party, an entrepreneur capable of independently opening and/or promoting your network in the new market. In this case, all management passes to the Master Franchisee, to whom you delegate the development of the network in a specific territory, obviously in exchange for the necessary financial compensation.

In turn, the Master can create collaborative relationships with potential affiliates on site. Want to learn more about how to expand your franchising network abroad? Learn more about the topic here: Foreign Franchising Development

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