Franchise

Franchising (from the French for free) is a method of doing business wherein a franchisor licenses trademarks and methods of doing business to a franchisee in exchange for a recurring royalty fee.

According to Financial Times, if sales by US franchise businesses were translated into national product, they would qualify as the 7th largest economy in the world.

Advantages

As practiced in retailing, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators).

As long as their brand and formula are carefully designed and properly executed, franchisors are able to expand their brand very rapidly across countries and continents, and can reap enormous profits in the process, while the franchisees do all the hard work of dealing with customers face-to-face. See customer service. Additionally, the franchisor is able to build a captive distribution network, with no or very little financial commitment.

For some consumers, having franchises offer a consistent product or service makes life easier. They know what to expect when entering a franchised establishment.

Overview

Overview

The term "franchising" is used to describe a wide variety of business relationships which may or may not fall into the legal definition provided above. For example, a vending machine operator may receive a franchise for a particular kind of vending machine, including a trademark and a royalty, but no method of doing business.

The parties involved typically enter a franchise agreement, which binds the parties together through contractual provisions. This is an arrangement whereby someone with a good idea for a business (the franchisor), sells the rights to use the businesses name and sell a product or service to someone else (the franchisee). A franchise agreement will usually specify the given territory the franchisee can use as well as the extent to which the franchisee will be supported by the franchisor (e.g. training and marketing campaigns). Most franchisee agreements, however, do not provide the franchisee with exclusive control over the given territory.

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