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The successful franchiser and franchisee form a symbiotic relationship that enriches them both. The franchiser can expand a new company without having to borrow huge amounts of capital. Franchisees pay an up-front fee, which usually covers certain training and furnishings, to become part of a chain. The cost is typically lower for companies that do not require much equipment or for chains that are just starting up. The fee can be as little as $9,750 for the business cards and other materials needed to open a Coustic-Glo franchise, which specializes in cleaning ceilings, or as much as $350,000 to open a McDonald's. Some franchisers assist with the start-up financing.
Once they are established, the owners of the outlets represent a regular source of income to the parent company, since they generally pay it a percentage of gross revenues and often share advertising and promotion costs as well. A Super 8 franchisee, for example, pays the firm a royalty of 4% of gross room revenues and contributes an additional 2% toward system-wide advertising.
In return, the franchisees often get a slew of benefits. They may buy not only a product or a name but a whole image and way of doing business. Many companies help their franchisees with almost every aspect of the operation. Says Stanley Williams, assistant director of communications for the Washington-based International Franchise Association: "The typical person starting a small business may be a good mechanic, cook or barber, but he doesn't know how to pick a location, buy supplies, hire and train workers and do his taxes. Franchising supplies this expertise."
The parent company may provide the architectural plans for the construction of the store, the uniforms for the workers and prizes to be used in promotional giveaways. Perhaps most important, many franchisers offer name recognition backed by advertising razzle-dazzle. Each of the 2,600 Taco Bell outlets in the U.S. has benefited from the chain's national TV campaign starring Chicago Bears Quarterback Jim McMahon.
Behind every thriving chain, of course, is an innovative, or at least appealing, idea. Daniel Bishop and five other commercial cleaners founded Omaha-based Maids International in 1979 to provide housecleaning services to busy working couples. The partners devised a team-cleaning approach in which four people can complete 25 basic jobs, from vacuuming and dusting to changing linens and washing windows, in less than an hour. Average charge: $55. Maids International teams working for 197 franchises now clean more than 10,000 homes in 33 states, the District of Columbia and Canada every month.