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.
How this Coaching Franchise has Created Better Lives for Hundreds of Franchisees
First off, we provide an industry-unique, 100% money-back guarantee on all our initial coaching services. We believe in eliminating any financial risk on the part of our clients. Our referral sources love that guarantee as well and are comfortable sending their clients to our coaches. We have a proprietary ROI Calculator each of our small business clients can complete BEFORE engaging us in any of our six coaching services. The client provides all the data to compute their projected and conservative ROI. Typically, clients project a 5-15 times return on their initial investment. In actuality, because our coaching services are so affordable (on average only $3,000 per year), clients often experience and gain an even much higher ROI after year one, year two, and beyond.
Franchise Events for 2013
Anaheim Convention Center 800 West Katella Avenue
How Social Media Sells Thousands of Tasti D-Lite Ice Cream Cones
In today's franchise interview, FranchiseHelp dives into Tasti D-Lite's use of social media technology to attract customers to their stores and trucks. The franchise's social media team is led by Social Technology Officer BJ Emerson and backed by CEO Jim Amos, the same man who led Mailboxes Etc. to 5,000 franchises and an eventual acquisition by UPS.