Definition of Franchising

Let’s took a look at the meaning of franchising, franchisors and franchisees.

What is franchising?

If you look it up in the dictionary, the definition of franchising is “the right or license granted to an individual or group to market a company’s good or services in a particular territory”.  That’s a fairly broad and incomplete explanation though.

The International Franchise Association goes a little more in depth definit franchising as “A contractual relationship between the franchisor and the franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format or procedure owned by or controlled by the franchisor, and in which the franchisee has made or will make a substantial capital investment in his business from his own resources.” 

In short, a franchisor ventures on a growth method by selling it’s opportunity to other investors in other markets. The franchisees pay an upfront fee, called the franchise fee to receive rights to the trademark, training on the business and any other tools and assistance the franchisor offers with their opportunity. 

In addition most franchisees pay a royalty which is usually a percentage of gross revenues to the franchisor for the continued support and growth assistance from the franchisor.

Most, but not all franchisors will grant their franchisees a protected territory guaranteeing they they will not sell another franchise in that territory. Depending on the type of business a protected territory may be based on things like population, households or zip codes, other franchisors will define a protected territory based on a physical radius. 

A residential services franchise such as a cleaning business will offer a protected territory based on a cluster of qualified households while someone like a Subway will offer a protected territory based on a distance based radius. 

Franchising comes in three major types…

The most common, and what we specialize in are called “business format franchises”… Those are your Subway and Fetch Pet CAre type models. The second type is a distribution franchise where a company grants another the rights to sell and market its trademarked products… Coke and Mercedes are easy examples. The third is a manufacturing franchise where a brand such as Levis may grant the rights to a clothing manufacturer the rights to make and sell its line of jeans.

“What an incredible resource! I knew we had a great business but was so confused on how to begin franchising. You all have made this so much easier!”

– Gregory Sayed

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