When I'm speaking with clients who are looking for ways to expand their business conversation often comes around to possibilities of using agents, distributors, licensing arrangements or a franchise.
These sales partners have a lot to offer. But it's important to understand what each type of partner means for your business (equally so for online enterprises).
The term 'franchise' has become a common way of describing a business relationship where franchisor allows other people to sell their products or operate same type of business under same name, usually within a designated area. But there is more to it than that. Much more. Legal obligations, management control, customer service and pricing are involved. And often 'franchise' is not correct term for relationship being offered.
Let's Have Some Definitions... Agent: A representative for your company who will find buyers and sell your products. Paid by commission on sales achieved. Stock is not usually held by an agent.
Distributor: An enterprise whose business is to buy merchandise for resale, usually to retailers or other industrial and commercial users.
License: A formal permission or authority to do, or not to do, something which otherwise would be a legal wrong. Often used when dealing with merchandise or procedures protected by trademarks and patents.
Franchise: A privilege granted by one organisation (the franchisor) to another (the franchisee) to sell, produce or use its products. Different types of franchises include: * A product franchise - which acts as an outlet for a particular product. * A system franchise (usually called a business format franchise) - which is authorised to conduct business according to a system developed by franchisor. * A process or manufacture franchise - for which franchisor supplies a critical ingredient or know-how for a production process.
According to Franchise Council of Australia most common franchise method is business format franchise, with 708 different systems being offered in Australia.
Typically each type of sales partner is subject to geographic restrictions of some kind, such as a pre-defined territory. Depending upon situation this may be part of a metropolitan area, a state, or an entire country. Ideally size of territory should be based on sales and/or profitability benchmarks. This is sometimes tough to calculate for new products and services.
At times definitions may overlap. For example a 'manufacture franchise' may be same as a 'license' for a manufacturer to produce certain items. The legal boundaries can be quite puzzling and expert assistance should always be sought.
Of particular importance is requirement of a business format franchise to offer comprehensive training, support, business management procedures and marketing programs. This all-inclusiveness is a hallmark of a true business format franchise.
It takes a long time to develop systems and knowledge required to create a business format franchise that conforms to Franchising Code of Conduct and that will be of interest to serious franchisees.