What is Subfranchising?
Franchisors may at times grant the right to exercise powers, normally reserved for them, to a franchisee in a specific territory. These entities are called “subfranchisors”. They are charged a separate initial fee during the start-up phase for the right of the subfranchisor to exercise the powers in their area. The rights offered in subfranchising include:
- The right to offer and sell franchises
- The right to collect fees and royalties
- The right to provide training services and support to franchisees within their designated boundaries
Like the franchisor, the subfranchisor signs a subfranchising agreement with the franchisees (when a franchise is sold) in the area. Technically, the subfranchisor takes over the role of the franchisor in certain geographic regions.
The subfranchisor often has to split the fees and royalties which are collected in his domain between himself and the franchise system, but in some cases they may retain a majority of the fees while simply forwarding a certain percentage upwards. The subfranchising agreement usually dictates the amount of the franchise fee and royalty to be received, so even though it may appear as highly lucrative arrangement for the subfranchisor, we have to realize that they have to first spend heavily to sign up a subfranchisee in their territories.
There is no specific amount of units that a subfranchisor may operate, it all depends on the agreement that they have with the franchisor. The franchisor may also revise the quota if the subfranchisor can successfully meet and operate the number of franchises decided upon in the franchise agreement. The expansion objectives may be measured in franchise agreements executed, units open and operating or units “under construction”. The subfranchisor can open their own units in their region but can also license other franchisees in their region in the time allotted to them in the agreement.
One must make sure whether subfranchising is being offered by certain franchises, since not every franchise system offers such agreements. This may be due to the organization disliking the loss of power associated with subfranchising. The subfranchisors can exert greater power on the franchise than individual franchise units since they have more units working under them and are a larger source of revenue for the system.
Subfranchisors also don’t have such an easy arrangement as it appears to be. They run a substantial financial risk as the investment required to purchase a territory can be very large. Also, subfranchisors are responsible for the leasing arrangements of franchisees in their area and they may face litigation from future disgruntled franchisees.
Yet these risks are calculated and overlooked if the subfranchisor focuses on the greater rewards in the long run. They will benefit from sharing the initial fee for each new franchisee and the on-going royalty payments made by the franchisees operating in their geographic region. These royalty payments may last for even 20 years and more.
The All-Franchising Team: Top Pro Athletes Who Own Franchises
If we missed your favorite star, have a good cry about it, then let us have it in the comments below.
Why I Have an Issue with the Forbes Franchise Rankings
The 5-Year Growth Rate and 5-Year Franchise Continuity are both great independent metrics of how a franchise is doing on average. As a potential franchisee both of these statistics are vital for selecting a franchise - you want to select a franchise that will provide you with a high return on investment and which will survive in the long run. I think these are, as FRANdata and Forbes suggested, two of the biggest (if not the two biggest) and most obvious metrics for whether or not a franchise is a “good” opportunity for a franchisee. But how do you use these to determine which franchise is BEST? This is the fundamental difficulty in coming up with a ranking system - it isn’t the difficulty in separating the good from the meh from the bad - it’s separating the great from the good and the best from the great. In the case of these rankings I found it to be pretty difficult to comprehend how they differentiated between the top ranked franchises. For instance, if you look at the difference between Discover Map (Forbes #4), Just Between Friends (Forbes #5), & Seniors Helping Seniors (Forbes #6) they all have extremely close continuity ratings and substantially different growth rates. In fact, in the case of these three, the overall rankings are opposite the growth rate rankings. Seniors Helping Seniors is ranked at the bottom of these three franchises despite having a growth rate that is 31 percentage points higher than Discovery Map and a continuity that is only 2 percentage points lower. This suggested to me that continuity was viewed as the dominant factor. But that logic didn’t hold for the rest on the “Economy Class” Top 10, as BrightStar Care (Forbes #7) had the same growth rate as Pop-a-Lock (Forbes #8) but a continuity rate that was 12 percentage points lower. These comparisons show that these were not the only two factors that went into the rankings, which is understandable, but no other factors that are explicitly listed in their results seem to be major factors.
Top 5 References to Applebee's in Friday Night Lights
Fans of the recently finished series Friday Night Lights remember the show for its heartwarming depiction of a small Texas town, Dillon, in love with its high school football program. (For you non sports lovers, the series' name refers to the day and time football games are typically contested at the high school level).