How to set up a franchise: key steps to success
November 19, 2024
Create a franchise is a growth strategy that is winning over more and more companies.
The model has experienced spectacular growth over the past 20 years.
Franchising has established itself in all sectors, from catering to personal services, hotels and many others.
It enables companies to develop rapidly and adapt to market trends and consumer expectations.
But success in franchising can't be improvised.
It's a demanding approach that requires you to define your concept, communicate your values, train your future partners and provide ongoing support.
In this guide, discover the key steps to creating a franchise, from designing your model to setting up a solid, successful network.
What is a franchise?
A franchise is a partnership between two legally and financially independent entities: the franchisor and the franchisee.
This model enables franchisors to distribute their products or services without direct investment in new outlets, while giving franchisees access to an established brand, ongoing support and management tools.
For the concept to work, it has to stand out from other models already on the market, whether in terms of customer approach, product type or visual identity.
Historically, the modern franchise emerged in the 1930s in the United States, then in France between the wars.
The model then flourished after the Second World War, buoyed by the economic growth of the Trente Glorieuses.
The idea was simple: why create a competing concept when you can draw on the experience of a solid company and a proven model?
This approach also reduces the risk of failure, as franchises offer support that improves the longevity of businesses.
The figures bear this out: less than 30% of franchised businesses close, compared with 50 % of independent businesses after 6 years in business.
This model is particularly popular in sectors such as fast food, where growth is based on strong brands and well-defined production standards.
The advantages and obligations of franchising: what you need to know
Franchisor benefits and responsibilities
The benefits
➜ Rapid growth without large investments: you can develop your brand on a large scale without having to finance each point of sale directly, thus accelerating the expansion of your network.
➜ Enhanced visibility : Each new franchise opening boosts brand awareness and solidifies your position in the market.
➜ Local knowledge: Franchisees contribute their expertise in the field, which is essential for adapting to the specific characteristics of each region.
Bonds
➜ Training and support : you need to train your franchisees and offer them ongoing support so that they master your concept perfectly.
➜ Passing on know-how : Sharing your tried and tested methods and processes is essential to guarantee the network's uniformity and success.
➜ Brand protection and supervision : make sure that the use of your brand remains in line with your standards to preserve its reputation and consistency.
Franchisee benefits and responsibilities
The benefits
➜ Pressing an established mark : franchisees benefit immediately from the brand's reputation, which makes it easier to attract customers from the moment they open.
➜ Ongoing support : access to proven management tools, marketing strategies and consultancy services reinforces business stability and reduces operational risks.
➜ Secure model : operating a concept validated and optimized by the franchisor minimizes the trial-and-error risks of an independent business.
Bonds
➜ Compliance with sign standards: to guarantee the uniformity of the network, franchisees must comply with the guidelines laid down by the franchisor.
➜ Payment of contributions : franchisees are required to pay costs such as entry fees and royalties, and to help finance joint marketing campaigns.
➜ Continuing education : franchisees are required to undergo regular training to keep abreast of developments in the brand and its practices.
Franchising is a shared adventure: it offers solid advantages to both parties, but everyone has to contribute if the network is to prosper and remain attractive.
The 5 key steps to building a franchise
Turning your concept into a franchise is a big step that can open up great prospects for your business. But before you get started, it's important to prepare the ground properly.
Here are the five essential steps to lay a solid foundation and make your franchise project a success.
Don't hesitate to save this guide and come back to it later - it's packed with information that could be useful to you along the way!
01. Validate the viability of the concept
Before launching a franchise project, it's imperative to check that the concept is not only profitable, but also duplicable. This stage is fundamental to ensuring the project's solidity and long-term viability.
Carry out in-depth market research
Start with a detailed market study to analyze the competitive environment and potential demand. This analysis should answer several key questions:
➜ What is the demand for your product or service? Identify the target audience and assess whether there is a real demand in different markets.
➜ Who are your direct and indirect competitors? Analyze your competitors' strengths and weaknesses to understand what could set you apart.
➜ What are the market trends? Find out about current consumer habits and future forecasts to see if your concept is in line with them.
Test the concept in several pilot outlets
Before franchising, it is advisable to test the model in at least 2 pilot outlets. These outlets are used to validate :
➜ Model profitability : check whether the concept is financially viable over a given period.
➜ Process efficiency: Test all procedures to ensure reproducibility. Make sure that every step, from inventory management to customer relations, can be easily passed on and monitored by third parties.
➜ Adaptability: observe how the concept works under different conditions (peak hours, holidays, seasonality) to anticipate the challenges that future franchisees may face.
Differentiate your offering from the competition
The concept must be sufficiently distinct to attract franchisees and stand out in the market. To achieve this:
➜ Identify your unique selling factor (USP): what makes your concept different and attractive? For example, a bakery which offers 100 % organic and gluten-free products could have an advantage in a growing market for these products.
➜ Develop a strong identity : This includes a logo, colors, slogan, and a recognizable interior design that can be easily reproduced at different points of sale.
➜ Complementary offer: if possible, offer complementary services or products that increase the perceived value of the concept.
02. Defining the franchise network's business model
Once the viability of the concept has been validated, it's time to structure the franchise network's business model. This step guarantees the franchisor's profitability, while at the same time making it attractive to future franchisees.
Clarify revenue sources
Identify the franchisor's main sources of revenue:
➜ Entrance fees : set a fee that reflects the value of the brand and the services offered, while remaining attractive to franchisees. For example, established franchises may justify higher entry fees.
➜ Royalties : specify the percentage or fixed amount deducted from the franchisee's sales. This income must cover support and coaching costs.
➜ Other sources : include potential revenues from the sale of exclusive products or additional services, such as continuing education.
Drawing up a profitability plan
Make sure the model is profitable for franchisees and the network:
➜ Margin calculations : analyze the expected profit margin for franchisees after deduction of fixed and variable costs.
➜ Return on investment (ROI) : determine the average time it will take for the franchisee to recoup his or her initial investment. For example, in some service franchises, the ROI can be 2 to 3 years.
➜ Regional variations : take into account cost differences between geographical areas (rents, salaries, etc.).
Defining the services provided by the franchisor
List the services included in the franchise agreement:
➜ Initial and continuing training : detail the training sessions planned and the subjects covered (management, marketing, operations).
➜ Operational support : specify the assistance available (hotline, site visits, management advice).
➜ Marketing tools : Describe any media provided, such as advertising campaigns or promotional material.
Control the distribution of expenses
Make sure that costs are shared between franchisor and franchisees:
➜ Initial costs : clarify the costs that the franchisee must cover (fitting out the premises, inventory, equipment).
➜ Contributions to communication campaigns : indicate whether a portion of royalties is dedicated to a common marketing fund.
Modeling financial forecasts
Establish a realistic financial model:
➜ Optimistic and pessimistic scenarios : present several projections to assess the impact of market fluctuations.
➜ Performance monitoring : include key performance indicators (KPIs) to monitor profitability and adjust the model if necessary.
03. Draw up a complete operating manual
The operating manual is the franchisee's "bible". The aim is to create a document so complete and clear that even someone with no prior knowledge of your business sector could run one of your chain's establishments by referring solely to this manual.
Standardize procedures
Document every essential step in the company's operations:
➜ Daily operations : detail processes for inventory management, customer service and maintenance. For example, a coffee should describe precisely how to prepare each drink.
➜ Safety and hygiene rules : add protocols for complying with sanitary standards, essential in the food service sector.
Structuring content
The manual must be clear, complete and easy to consult:
➜ Organization into sections : group procedures by theme (operational, human resources, marketing, management).
➜ Various formats : combine text, illustrations and photos to facilitate understanding and team training.
Defining quality standards
Indicate the quality criteria to be met:
➜ Performance indicators : mention the KPIs to be tracked, such as service time or customer satisfaction.
➜ Presentation standards : describe the interior layout, product arrangement and visual uniformity for each outlet.
Adapting the manual to local contexts
Adjust for local conditions:
➜ Regional regulations : add specific sections if regulations differ by region (licenses, opening hours, terraces).
➜ Flexibility : allow minor adaptations to suit local habits, while maintaining the overall brand identity.
04. Drawing up the franchise agreement
The franchise agreement is the legal document that defines the relationship between franchisor and franchisee. It formalizes rights, obligations and operating conditions, guaranteeing clarity and transparency.
Defining the parties' obligations
Specify the responsibilities of each party:
➜ Obligations of the franchisor : include initial training, ongoing support, and provision of necessary manuals and tools.
➜ Obligations of the franchisee : mention compliance with procedures, participation in ongoing training and application of quality standards.
Defining the duration and conditions of renewal
Clarify contract duration and renewal terms:
➜ Initial duration : set a standard duration, often between 5 and 10 years.
➜ Renewal conditions : explain renewal criteria, such as performance or compliance with contractual obligations.
Detailed financial clauses
Detail the financial aspects to avoid any ambiguity:
➜ Entrance fees : indicate amount and terms of payment.
➜ Periodic royalties : specify percentage or fixed sum, and payment frequency (monthly, quarterly).
➜ Marketing fund : mention if part of the royalties is dedicated to a common fund for brand promotion.
Details of intellectual property protection clauses
Make sure that use of the brand is regulated:
➜ Brand use: specify the conditions of use of the logo, slogans and other branding elements.
➜ Privacy : add a clause to protect know-how and sensitive information.
Detailed termination clauses
Indicate the situations that may lead to the termination of the contract:
➜ Termination by the franchisor : detail cases of non-compliance by the franchisee (failure to meet quality standards, non-payment).
➜ Termination by the franchisee : mention valid reasons for early termination, such as a serious breach of the franchisor's obligations.
➜ Post termination procedure : include provisions for the use of the trademark and the transfer of goods.
Don't forget the appendices and additional documents
Add appendices for greater clarity:
➜ Operation manual outline : include a summary of key procedures.
➜ Performance indicators : include a list of KPIs that the franchisee must track.
➜ List of training courses : specify which training modules are included.
➜ Retroplanning : everything that needs to be done between signing the contract and opening the outlet.
05. Build the training and support program
Training and support are essential to the success of our franchisees. They guarantee mastery of the concept and ensure consistent performance across the network.
Establish an initial training program
Create a training plan to prepare new franchisees to launch their business:
➜ Course duration : specify duration (e.g.: 2 weeks) and methods (face-to-face, online).
➜ Contents : cover essential aspects such as operational management, customer service and the use of specific tools.
➜ Field practice: plan on-site training days at an existing point of sale to observe and practice.
Designing teaching aids
Make learning aids available:
➜ Manuals and guides : provide detailed documentation explaining procedures.
➜ Explanatory videos : create tutorial videos to demonstrate practical steps.
➜ E-learning platform : set up an online space with courses and, why not, interactive modules.
Post-opening support
Provide follow-up for the first few months to support your franchisees in their launch:
➜ Regular coaching : offer weekly or monthly coaching sessions to help franchisees overcome the challenges of launching a business.
➜ Field visits : Plan regular visits to observe, advise and solve any problems.
➜ Performance analysis : set up monitoring tools to analyze key indicators and adjust actions if necessary.
Mistakes to avoid when launching a franchise
Creating a franchise involves following a precise plan to build a solid, attractive network.
However, even with careful preparation, certain mistakes can jeopardize the success of your project.
We take a look at the most common mistakes, with practical advice on how to avoid them and maximize your chances of success.
01. Neglecting market research
Insufficient market research can jeopardize the success of your franchise right from the start.
Why is this a problem?
Without a clear analysis, it's hard to know whether demand is sufficient and whether your concept can stand up to the competition.
Example: A chain of restaurants specializing in high-end gastronomy could set up in an area where purchasing power does not match its prices, thus reducing its chances of success.
How can you avoid this mistake?
Carry out comprehensive market research to understand local demand, identify your competitors and choose the most promising locations.
02. Propose an untested concept
Launching a franchise without having validated the concept in practice is risky.
Why is this a problem?
An untested model can run into unforeseen difficulties, whether in terms of logistics, profitability or customer satisfaction.
Example: A restaurant that introduces a new delivery service without testing it could run into organizational problems that impact service quality and delivery times.
How can you avoid this mistake?
Test your concept over time, in several pilot establishments, to identify any obstacles, adjust processes and guarantee sufficient profitability before rolling it out as a franchise.
03. Drafting a vague franchise agreement
An imprecise or incomplete contract can lead to legal and operational conflicts.
Why is this a problem?
A lack of clarity in the contract can lead to disagreements over obligations, rights and the management of standards.
Example: A franchised restaurant whose contract does not clearly specify training and quality control obligations could challenge measures taken by the franchisor, creating tensions.
How can you avoid this mistake?
Have the contract drawn up by a franchise specialist to ensure that it is complete and explicit, covering the obligations of both parties, financial clauses and termination conditions.
04. Not investing in training
Training is essential to ensure that franchisees master the concept.
Why is this a problem?
An inadequately trained franchisee may not comply with the brand's standards, thus undermining the network's consistency and reputation.
Example: A fast-food restaurant whose franchisees are not properly trained in inventory management and food preparation can experience quality inconsistencies and financial losses.
How can you avoid this mistake?
Offer a comprehensive initial training program and ongoing training sessions to ensure that every franchisee fully masters the company's operations.
05. Ignoring the importance of franchisee feedback
Failure to take franchisee feedback into account can limit network optimization and growth.
Why is this a problem?
Franchisees, being on the ground, have a unique vision of challenges and opportunities. Ignoring their feedback can lead to a disconnect between franchisor and network.
Example: A franchisee who reports difficulties with an unintuitive online ordering system that goes unheard could see sales fall, affecting both sales and brand image.
How can you avoid this mistake?
Hold regular meetings to listen to franchisees and incorporate their feedback into the development of processes and tools. This fosters a sense of collaboration and improves network performance.
Ready to grow your network?
Do you dream of franchising your concept to reach new markets?
At Obypay, we're here to help you grow.
We understand the challenges involved, and can provide you with the right solutions and support to simplify your network management and boost your growth.
To find out more, read our practical articles on franchise creation and management.
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➜ How to use email marketing for a franchise network?
And be inspired by the success stories of our customers who have already turned their vision into success.
➜ 3 Brasseurs: digital for conviviality
➜ Beer's Corner: customer service at the heart of its development
Do you have any questions or would you like to discuss your project? Get in touch with our team today.
