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The World of Franchising

Besides being a valid job opportunity, franchising represents an investment opportunity, especially for those who intend to set up on their own business and start an effective partnership.

If you are planning to expand your business or are looking for a partnership to extend your services, franchising may be the ideal choice. However, before starting your project, it is essential to understand every facet of this type of business to prepare yourself on what franchising is and how it works.

What Franchising is and how it works

The term franchising refers to a commercial affiliation that implies a collaboration between entrepreneurs, aimed at the production or distribution of goods or services. Defined as an agreement between two parties, it is a partnership that can be started with a brand to gain support in the start-up phase of a new business. This latter method is particularly useful for exploiting the reputation of an already established brand: it is a relationship based on charges and benefits, in which, through a real contract, the parent company grants the franchisor the right to sell goods or services owned by them and at the same time offers technical assistance and a proven working methodology.

The term franchising refers to a commercial affiliation that implies a collaboration between entrepreneurs.


As in any commercial agreement, the peculiarity of franchising is that of being a collaborative relationship in which each subject is independent of the other, both from an economic and legal point of view: this particular type of collaboration guarantees a minimum entrepreneurial risk and favours the possibility of earning profits in a particularly short time, thanks to continuous consultancy and the so-called know-how, i.e. the knowledge and skills transferred from the company to the affiliate. But how does franchising work exactly? To understand this, we must look at the different forms in which it is franchising exists:

Industrial Franchising.

This is a rather frequent contract in the catering sector, in which the parent company not only transmits the licence and the brand, but also the production techniques and technologies. Essentially, the franchisee identifies with a company that produces the goods and distributes them using a network of associates.

Distribution Franchising.

In this case, in addition to receiving commercial knowledge and techniques from the parent company, in order to sell the products on the market, the affiliate will have to pay the parent company a one-off fee, called an entry fee, a periodic fee or royalties.

Service Franchising.

In this type of contract, we are no longer speaking about products but about the marketing of services, for example in sectors such as travel.

In regard to the organisational models, they can be distinguished in:

Direct.

This is a type of contract that provides for direct entry into a foreign market for one or more local operators interested in affirming their business in a particular country, where the company’s brand is well known.

Indirect.

This is a contract mode in which the company involves a third partner with capital who assumes the responsibilities and financial risks of the collaboration. This might be the case for companies interested in exporting to countries that are very distant from a cultural point of view and with difficulties in terms of distribution. It is therefore a profitable contract for both parties, since on the one hand the franchisor has the opportunity to expand his commercial network and increase the brand identity without personally dealing with the physical management of the various stores and instead sharing the costs. On the other hand, the affiliate relies on a system already tested in the market, reducing the risks associated with a business that has just been set up, which may not have consolidated experience in the sector.


The costs for opening a franchising operation

It is important to evaluate the economic aspect and the costs that the franchisee will incur in compliance with the contractual rules governing the relationship. The entry fee guarantees the right to enter the company, therefore a commission paid at the time of signing the affiliation contract is defined. Then, there is an additional payment of a percentage of turnover that may exist for a certain period, or, at the discretion of the company, for the entire duration of the partnership. To the initial sum and the share paid on the profits, the franchisee may be required to pay a periodic fee which has the value of an advertising contribution for the benefits obtained from the marketing campaigns undertaken by the brand, at national or local level. In addition, the various contributions for the possible use of tools and equipment or bank guarantees paid to guarantee the goods are added to the expenses.

MBE Centres work on internationally negotiated agreements: being part of our franchising system allows you to face the most demanding challenges thanks to effective teamwork and constant commercial and operational support.

The MBE franchising foresees an affiliate program that provides assistance, training, support and possible financial benefits. By starting your business with MBE, you can be part of a network of around 1600 service centres worldwide, with 150 in the UK and Ireland and benefit from the success of other entrepreneurs.


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