How Franchising Works : Mcdonalds Franchise Example
Summary
TLDRIn this informative video, Tark Johnson, a multi-million dollar franchise owner, explains the fundamentals of franchising. He covers what a franchise is, the roles of franchisors and franchisees, and the process of opening a franchise, including initial fees and setup costs. Johnson also discusses ongoing royalty fees and the benefits of franchising for both parties. He offers a free 23-page guide, '7-Step Blueprint to Business Profits in 60 Days,' to assist aspiring franchise owners in achieving success.
Takeaways
- 😀 There are over 750,000 franchises in the United States, employing more than 8 million people.
- 👤 Tark Johnson, the speaker, built a multi-million dollar franchise business with locations in California and Florida.
- 📚 A franchise is a business system where the franchisor grants the rights to own and operate a business location to a franchisee.
- 🍔 McDonald's is used as an example, where McDonald's is the franchisor and the owner of a specific location is the franchisee.
- 💰 Opening a franchise involves an initial franchise fee, which grants the rights to operate the business, and additional costs to set up the location.
- 🏢 The cost to open a franchise can vary greatly, from a few thousand dollars to over a million, depending on the brand and location.
- 📈 Franchise owners are expected to pay royalties, which can include a percentage of sales and marketing fees, to the franchisor.
- 🤝 Franchisors benefit from the capital and effort of franchisees, allowing them to expand without bearing all the costs themselves.
- 💼 Franchisees are more invested in the success of their business compared to corporate-owned locations, increasing the likelihood of success.
- 🛠 The franchisor focuses on the overall brand, marketing, and securing the best suppliers and technology for the franchise system.
- 📈 Johnson offers a free 23-page guide called 'Seven-Step Blueprint to Business Profits in 60 Days' for those interested in franchising.
Q & A
How many franchises are there in the United States and how many people do they employ?
-There are 750,000 franchises in the United States alone, employing over 8 million people.
What is the role of a franchisor in a franchise business model?
-A franchisor, like McDonald's in the script example, issues the rights to own and operate a franchise location to a franchisee, providing a system and guidelines to be followed in running the business.
Who is a franchisee and what is their relationship with the franchisor?
-A franchisee is an individual or entity that signs an agreement with the franchisor, acquiring the rights to own and operate a specific franchise location, such as a McDonald's restaurant.
What is the initial cost one might incur when starting a franchise with McDonald's?
-The initial cost includes an initial franchise fee, which for McDonald's could be around $30,000, and additional costs to get the location open, which can range from a million dollars to two million dollars.
What does the franchisee receive for the initial franchise fee?
-The initial franchise fee, such as the one paid to McDonald's, gives the franchisee the rights to own and operate the franchise system, but does not cover the costs of opening the actual location.
What are the ongoing costs a franchisee must pay to the franchisor?
-A franchisee must pay ongoing costs such as a royalty fee, which is a percentage of sales, and potentially a marketing fund fee to contribute to the franchisor's marketing efforts.
Why might a franchisor require franchisees to purchase supplies from specific suppliers?
-A franchisor may require purchases from specific suppliers to ensure consistency in product quality and to potentially earn a percentage of the sales, contributing to the franchisor's revenue.
What are some benefits of owning a franchise rather than a corporate-owned business?
-Owning a franchise comes with benefits such as having 'skin in the game,' which can lead to more motivated and invested business operation, as opposed to corporate-owned businesses where managers may not have the same level of personal investment.
Why do franchisors choose to expand through franchising instead of opening more corporate-owned locations?
-Franchisors may choose to expand through franchising to leverage the capital of franchisees to open new locations without the need for massive loans or giving up ownership of their company, while also benefiting from the franchisees' personal investment in the business.
What is the role of the franchisor in supporting franchisees?
-The franchisor focuses on the overall brand, marketing, securing the best suppliers, negotiating pricing, and investing in technologies and systems to support franchisees in running their businesses efficiently and profitably.
What additional resources does the script's speaker, Tark Johnson, offer to those interested in franchising?
-Tark Johnson offers a free 23-page guide called 'Seven-Step Blueprint to Business Profits in 60 Days,' which provides a detailed blueprint for operating and running a successful business or franchise.
Outlines
😀 Introduction to Franchising
Tark Johnson introduces the concept of franchising, highlighting the prevalence of franchises in the United States with 750,000 locations employing over 8 million people. He shares his experience building a multi-million dollar franchise business and outlines the video's agenda, which includes defining franchising, explaining how it works, and discussing the potential for making money through franchise ownership. Johnson also mentions well-known franchise brands and encourages viewers to engage with the video by liking, commenting, and subscribing.
📘 Understanding the Franchise Model
This paragraph delves into the specifics of the franchise model using McDonald's as an example. It explains the roles of the franchisor and the franchisee, with the franchisor granting the rights to operate a business under their brand and the franchisee running the business. The paragraph covers the initial investment required to open a franchise, including the initial franchise fee and the costs associated with setting up the location. It also touches on the varying costs of different franchises and the importance of the franchisee's commitment to the business's success.
💰 Financial Aspects of Franchising
The financial obligations of owning a franchise are discussed, including the ongoing royalty fees that franchisees must pay to the franchisor as a percentage of their sales. This fee supports the franchisor's provision of support and marketing efforts. The paragraph also explores the franchisor's potential to profit from supplying equipment and supplies to franchisees. It explains the benefits for the franchisor of expanding through franchising rather than corporate-owned locations, such as leveraging the franchisee's investment and commitment. Additionally, it addresses the responsibilities that remain with the franchisee, such as hiring staff, securing a location, and managing payroll.
🤝 Benefits of Independent Franchise Ownership
The benefits of independently owned franchises are highlighted, emphasizing the personal investment and dedication of the franchisee, which can lead to greater business success compared to corporate-owned locations. The paragraph also discusses the franchisor's role in focusing on the brand's overall growth and support for franchisees, including securing the best suppliers and investing in technology to improve business operations. The video concludes with an invitation for viewers to ask franchise-related questions, a call to action for likes and comments, and a promotion of a free 23-page guide to business profitability.
Mindmap
Keywords
💡Franchises
💡Franchisee
💡Franchisor
💡Initial Franchise Fee
💡Royalty Fee
💡Marketing Fund Fee
💡Skin in the Game
💡Capital
💡Corporate-Owned Locations
💡Investment in Business
💡Operational Responsibilities
Highlights
There are 750,000 franchises in the United States, employing over 8 million people.
Tark Johnson built a multi-million dollar franchise business with locations in California and Florida.
A franchise is a system to operate a business, exemplified by McDonald's.
Franchisors issue rights to own and operate a franchise, while franchisees sign agreements to gain these rights.
Franchisees must follow the franchisor's rules and system, akin to assembling furniture from IKEA.
Opening a franchise involves paying an initial franchise fee for the rights to operate the business.
Franchisees pay additional costs for location setup, including lease, construction, and equipment.
The cost to open a franchise can vary widely, from a few thousand to millions of dollars.
Franchise owners are responsible for hiring staff, finding a location, and running payroll.
Franchisees pay royalties to the franchisor, which supports the brand and contributes to marketing efforts.
Franchisors may also profit by requiring franchisees to purchase supplies from specific vendors.
Franchisors benefit from franchisees having 'skin in the game', increasing the likelihood of business success.
Many franchisors lack the capital to expand on their own, so they sell franchise rights to raise funds.
Franchise owners have more personal investment and commitment compared to corporate-owned locations.
Tark Johnson offers a free 23-page guide called 'Seven-Step Blueprint to Business Profits in 60 Days'.
Franchisees are responsible for assembling and operating their business, despite having the tools and system.
Johnson encourages viewers to engage with the video by liking, commenting, and subscribing for more franchise insights.
Transcripts
welcome so there are 750
000 franchises in the united states
alone and those franchises employ over
8 million people if you're new here my
name is tark johnson i built a
multi-million dollar franchise business
with locations in california and florida
and in this video
we're going to talk about how
franchising works
so we're going to talk about what is a
franchise
how does a franchise work and then we'll
even go into
how you could even make money owning a
franchise so here are some brands that
are franchises that you may or may not
know
so you got brands like mcdonald's
baskin robbins taco bell
kfc one of my personal favorites
five guys burger king
711 subway and even marriott
is a franchise now before we get started
if you like learning about business
or you're a small business owner
yourself or want to be a business owner
please make sure to hit the little like
button below it helps the youtube
algorithm
show this video to more and more people
also drop me a comment below and tell me
what your
favorite franchise brand is or
any franchise questions that you have so
make sure to hit the subscribe button as
well so that way you make sure to not
miss out any
on any of the other videos that i post
all right so what is a franchise
very simply a franchise is a
system in which to operate a business
so for this video we're going to use a
very easy example that
everyone will have heard of no matter
where you live which
is mcdonald's so mcdonald's is
a franchise company the first thing we
need to know are two different terms
number one is the term franchisor number
two
is franchisee so in this example
mcdonald's is the franchisor
they're the ones that issue the rights
to own and operate a mcdonald's location
a franchisee is that person that
signs an agreement with mcdonald's and
gets the rights to own and operate
a mcdonald's franchise location so if
let's say for example
you and your your family and some of
your buddies
all pooled some money together and
decided that you wanted to open up a
mcdonald's
you would be the franchisee and you
would sign an agreement with mcdonald's
who's the franchisor so when you sign an
agreement with mcdonald's they're
basically
they give you a guide and a system
to own and operate your own mcdonald's
franchise
now in that system you gotta follow
their rules
you got to use their system it's kind of
like if you went to ikea
and you bought a piece of furniture from
ikea
you're basically buying this box in that
box you have all of the parts
you have the manual you have the tools
and they're saying here's the box
now you have to do the work in order to
put
the furniture together so similar to
mcdonald's
they're going to give you the box
they're going to give you the tools
they're going to give you the blueprint
all the parts and then it's your job to
actually put it together with their
support with their instruction manual
and so the way that that works is that
when you're opening a franchise
you have to pay money in order to get
those rights so as an example with
mcdonald's
you will first pay let's say your
initial franchise fee
so you might pay a 30 000
fee to mcdonald's and all that fee
gets you is the rights
to own and operate the system so in that
case
if we're going to ikea and we're
planning on buying this piece of
furniture
you would pay this fee just for the
right to
have that piece of furniture that
doesn't even actually buy you
all of the tools and everything yet and
then so secondly after you pay that
initial franchise fee to sign the
agreement and to get the right
to operate a location now you got to pay
all the money
to get that location open so
you got to sign a lease you got to put a
deposit on that lease
you got to find a place to own and
operate the business
you have to hire a contractor to build
your location or if you already are
have a location you got to go in and
hire the contractor to make it look like
the actual business
so as an example when my wife and i
bought our first franchise
we leased the space and then we had to
pay a couple hundred thousand dollars to
have it all built out
and make it look like the franchise
brand
so with the mcdonald's that can range
from a million dollars all the way to
two million dollars
with other franchise locations you can
own a franchise for as little as
a few thousand dollars just depends on
what kind of franchise it is
so when someone hears hey wow a steak n
shake you can get a steak and shake
franchise for only ten thousand dollars
well hold on a second that ten thousand
dollars is just the fee
to get the business open then you still
have to
get a loan or figure out a way to come
up with the 300
400 500 000 a million dollars to get
that business open
depending upon what kind of business
that is so the example of
my wife and i my wife and i it took
300 000 to get our business open so
first we paid our initial franchise fee
which was 25 000 and then after paying
an attorney to review the lease placing
the deposit
for the lease deposit with utility
companies
permitting all of the equipment paying
for the general contractor
our initial order for all of our food
supplies
and wind up coming out to about 300 000
is what it cost us to get our franchise
open
now what worked out great for us is that
we went up doing over thirty thousand
dollars in sales our second month in
business until we were able to get that
profitable our second month in business
uh if you want to learn how we did that
i created a whole
23-page blueprint and guide that you can
use
because i love helping people which is
why i make these videos
but i created that guide called my
seven-step blueprint to business profits
in 60 days
so that you can use it as the blueprint
to create
your own successful business or your own
successful franchise
so leave a link to that below in the
description of the comments or something
like that
or you can just go to my website
johnson.com and get it for free
but let's move on so then once you have
the business open
so let's say you have the mcdonald's
open you will pay
the franchise and mcdonald's
a percentage of all of your sales
so that you maintain the rights
to own and operate that business so as
an example if your mcdonald's is doing
two million dollars a year in sales
you might have to pay ten percent in
what's called
a royalty fee to mcdonald's
and that royalty fee pays for the
support that you get from mcdonald's it
pays for different marketing that they
do
you might have to pay a separate
percentage called a marketing fund
fee specifically to contribute for
all of the ads that mcdonald's does
and so those are what's called the
royalties and the royalties or what you
pay to the franchisor
that is mostly how the franchisor
makes money the franchisor can also make
money
by making you purchase your food
your equipment or any of your supplies
from a specific supplier and so the
franchisor
may sell you those things directly and
then they get a percentage
of it so that's very common it's very
normal some franchisees don't like it
but at the end of the day the franchisor
has to make money as long as they're not
bending you over and you know really
charging you a lot of money for it then
it makes sense it's a win-win the
franchisor
makes money they continue to reinvest in
the system and make things better
and then you make money and you are able
to profit and support your family
and what your dreams are so here's a
question that you might ask and thinking
about okay now i'm starting to
understand how a franchise works
why wouldn't mcdonald's the franchisor
why wouldn't they just open up locations
themselves well one mcdonald's does so a
lot of franchisors
have corporate owned location and france
franchise zone locations
that are independently owned and
operated most franchise companies
start out first corporate
and not necessarily corporate as in like
big
but a lot of franchises start with
someone like you or myself
having an idea to create a business we
open a business and then we open
four or five or six or ten and those
businesses become successful and then we
go wow
i really want to grow this brand
into a much larger concept and so what
they'll do
is because they don't have the money or
the capital to go out and open a hundred
more locations
and instead of going and getting massive
massive loans
or giving someone ownership of their
company to raise
money they say you know what we're gonna
package this
into a franchise we're gonna go out and
sell the right so that other people can
own these franchises
there's a couple of benefits in doing
that one
franchise owners have skin in the game
have you ever been to a business
where you go in let's say it's like a
food business that maybe is a chain or
corporate owned and the employees are
just like on their
phone they don't care they're not doing
anything they're just like
hi how can i help you today well
a lot of times some of those businesses
are corporate owned and so the benefit
of a
independently owned business is that you
have the owner
there helping to operate and run the
business they have
more skin in the game and so that
increases the likelihood
of that business succeeding as opposed
to paying
a manager that's just hired by corporate
and you're paying them 40 or 60 000
a year to run that business that they
don't necessarily care about and they'll
kind of leave at any time
now i know that's not fair to say for
anyone who's an employee
and who may be a manager who operates a
business i'm generalizing here the point
is not to try to disrespect you but
generally speaking those independently
owned and operated businesses
the franchisors want people that have
skin in the game number two is
capital right so i i mentioned this
before is that a lot of the time
these franchisors they don't have the
money to go out and open another 50 or
100 locations so
they're going out there finding people
that have the money
to open up those locations and then
they're going to support
those owners by making the system
as best as they can and so what the
franchisor does is they
focus on the overall brand
going out there and marketing the brand
getting the name out there
they focus on making sure they get the
best suppliers
possible for the franchise owners
negotiate the best
pricing for
those vendors as an example mcdonald's
in 2019
the company bought another company for
300 million dollars
and that was just for
mcdonald's to have a stake in several
companies that develop
apps and mobile payment systems and
utilize
artificial intelligence so instead of
mcdonald's spending 300 million dollars
and opening up
new locations what they do they spend
the 300 million dollars
in investing in the business to make the
business be able to run
profitably and efficiently and so at the
end of the day there are
hundreds of thousands of franchises
there are over 700 000
franchise locations and when you open a
franchise or when someone opens a
franchise location
you still have to hire the staff the
hire the staff
is employed by you not the franchisor
you still have to find the location you
still have to sign the lease
you still have to run payroll so as a
again as
the ikea example although you're buying
the box that has
all the pieces of the furniture it has
all the tools it has the wrenches it
might have a screwdriver it's got all
the nuts and bolts
it's got the directions and instructions
you still have to do the work and
actually
put the piece of furniture together so
it's the same thing with the franchise
you might be buying a box with all the
tools and the resources and the kit
but at the end of the day you still have
to do all of the work
and get that business open and then run
and
operate that business so drop me a
comment below with any of the franchise
questions that you have i do my best to
respond to all the comments personally
also make sure to hit the little like
button for the youtube algorithm it
shows this video to more and more people
and if you're interested in franchise
ownership or starting your own business
or if you even
have one already make sure to head to my
website
get my free 7-step blueprint to business
profits in 60
days and again it's a great 23-page
guide and blueprint
that shows you exactly how to operate
and run
a successful business and
guys i'll leave a playlist here about
some other franchise
videos or it's on one of these sides
here
but i have a lot of other videos on
franchising
how it works what questions you should
ask how they make money basically
everything you want to know about owning
a franchise i really hope you got value
out of this video my intention
is to serve you and to help you and i
look forward to seeing you on the next
one
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