How Franchising Works : Mcdonalds Franchise Example

Summary

In 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.