A guide to the franchise business model

Roughly one in seven businesses worldwide are franchises, contributing $2.3 trillion to the global economy every year. Some of the biggest companies in the world run a franchising model, from McDonalds to Hertz, which might make you wonder – why is it such a popular way of operating?

In a nutshell, the franchise model offers prospective business owners a way of achieving their goal while avoiding many of the pitfalls that come along with setting up a new venture of their own. It’s an excellent way to get experience running a business, as franchise owners will typically receive guidance and support from their franchisor while also benefitting from the smooth on-ramp provided by gaining access to an established business model and brand.

Venture X is the one of the fastest growing franchises in the world, so we know a thing or two about how it all works. Here’s a summary of everything you need to know about the franchise business model, and why it’s worth considering over starting a new business of your own.

What is the franchise business model?

The franchise model is a method of operating a business involving a legal and commercial agreement between two parties – the franchisor and franchisees. The model revolves around the owner of a franchise business, the franchisor, receiving payment from a third party, the franchisee, in exchange for their use of the business model and brand.

In other words, the franchisee pays the franchisor a fee to operate as part of their business and have licence to use the franchisor’s trading name and operating strategy. You can think of it like a typical multi-location business, but instead of the managers of each location being employed by the business itself, they are the owners and sole operators of their own location. The details of the franchise relationship is typically outlined in a franchise agreement – a contract that outlines the guidelines within which the franchisee must operate their franchise.

Theoretically, and most often in practice, the relationship between the franchisor and franchisee is mutually beneficial. The former gets to achieve expansion on a scale that’s usually beyond what can be accomplished without bringing on board franchise partners, while the latter gets to own and run a business that’s already established and successful. That’s part of the reason that franchising is growing in popularity as an operating model.

Types of franchise agreements

Franchises can exist in practically any type of business – spanning sectors like retail, hospitality, property, and more. But in any sector, there are a number of types of franchise agreements that can be struck between franchisors and franchisees. These are typically defined as:

Single unit franchise

A single unit franchise agreement involves the franchisee purchasing the rights to operate as part of the franchise business with a single location. In the case of Venture X, this would mean owning and operating one workspace.

Multi-unit franchise

A multi-unit franchise agreement is for franchisees who want to own more than one location in the franchise business. Using the example of Venture X again, a multi-unit franchisee might own two, three, or even four workspaces across the UK and Ireland.

Master franchise

A master franchise agreement goes beyond the scope of the other two types, allowing the franchisee to not only own and operate their own franchise location but also to become a sub-franchisor and enlist more franchisees in their region. For instance, Venture X UK & Ireland is possible through a master franchise agreement with Venture X, meaning we are able to enlist new franchisees ourselves.

Benefits of franchising

The franchise model offers benefits to both the franchisor and the franchisee – that’s one of the reasons it’s so popular in a diverse range of sectors across the world. But you’re probably mostly interested in the benefits to the franchisee, so here are some of the main reasons you’d consider a franchise agreement over starting a new business of your own:

Brand recognition

In contrast to starting a new business, which is akin to beginning your journey from the ground floor, franchisees get an instant head-start by joining an established brand that, in most cases, will already have a customer base and some level of recognition in their sector. This means that there’s no need to develop a brand from scratch or build your reputation – you become a part of an already respected business.

Advice and support

Especially beneficial for people who are inexperienced in running a business or operating in a specific sector, the franchise model usually incorporates significant support in the form of initial training, veteran advice, and ongoing assistance. This means franchisees can draw from years or decades of learning and develop their understanding of the ins and outs of the industry quicker than would ever be possible by themselves.

Access to network assets

Economies of scale exist everywhere, and this economic principle applies significantly to the franchise business model. When you join a franchise, you usually get access to the resources and assets of the network. Instead of having to source your own suppliers, partners, and materials, you get to utilise the collective resources of the entire business.

Minimised risk

Running a business is inherently risky. In fact, around 60% of new businesses fail within their first three years. But the stats show that the story is quite different with franchises, with the British Franchise Association showing that 93% of franchisees were running profitable businesses and less than 1% of franchisors were closing due to commercial failure. That’s a stark difference, and is testament to the power of the other benefits of franchising.

The Venture X Franchise opportunity

Venture X is the fastest growing coworking brand in the world and a leading franchisor, with 60 Venture X locations already open across eight countries, and 130 franchise deals signed in total across 30 countries. Venture X UK & Ireland is now looking for new franchisees to partner with, offering the opportunity to join the exciting coworking sector, which is growing with no signs of deceleration.

One of the things that makes becoming a Venture X franchise partner so compelling is that our business model has already been proven in multiple locations and countries around the world. Our proven pathway will get your franchise up and running quickly and efficiently. We’ve done the groundwork, ascertained what your ideal client wants, and figured out how to meet that demand, reducing the time and capital required by you.

Opening a Venture X franchise will also give you a head-start over your competitors. We provide you with full training before you start and provide access to trusted suppliers and ongoing support as you open and grow. And Venture X franchisees aren’t just limited to one revenue stream – there are a whole host of additional products and services which can provide benefits to your engaged client base and increase the profitability of your investment.

You can find out more about the Venture X franchise opportunity by requesting more information here.