Starbucks worker

What is a Franchise?

According to International Franchise Association, there are over 733,000 franchise establishments in the US which have provided over 7.6 million jobs and generated over $674.3 billion to the economy. The franchising industry has played a significant role in providing jobs, new markets, brand awareness, and more opportunities. Because of the impact that it has on the economy and people’s lives, it’s definitely encouraging to motivate entrepreneurs to pursue this type of endeavor. 

However, when it comes to opening up a franchise, there are a lot of contracts and agreements that require an expert legal team such as California Franchise Attorney.

With an excellent team and support, it’s vital to understand the concept of a franchise along with various examples.

What is a Franchise?

A franchise is a method of distributing products and services. There are at least two people involved in the franchise system, the first one is the franchisor who established the brand trademark and business system, and the other is the franchisee who pays the initial and royalty fee for the right to do business under the franchisor‘s business model. There are two types of franchising relationships, a Business Format Franchising and a Traditional or Product Distribution Franchising. 

The Business Format Franchising is where the franchisor provides the franchisee with the product, service, training, and the entire system for operating the business. The franchisee receives the development support and site selection, training, and brand standards from the franchisor. The other model is the Product Distribution Franchising, which is less common, but it often occurs in the manufacturing industry, gasoline, automated, and bottling.

Related: How to Start a Franchise in 15 Easy Steps

Franchising’s Focus on Values

When people think about the franchise, the first thing that they usually contemplate is the law. This is mainly because of all the contracts and legal agreements that franchise owners go through to open up a business. However, the initial inquiry that people should concentrate on is the value of the relationship, which reflects how the franchisor supports their franchisee, and how the franchisee delivers the products and services as well as meeting the brand standard.

Franchising’s Focus on Brands

The franchisor’s brand is the most valuable asset of the business. The consumer usually decides which store to shop at and how often to visit based on what they think and feel about the brand. Some consumers don’t care who owns the business as long as the brand expectations are met. With that in mind, the franchisee needs to develop a relationship with their customers to maintain loyalty so they will come back to purchase more products and services. 

Related: Franchising Basics: The True Cost to Open a Franchise

Franchising’s Focus on Support

An excellent franchisor provides a reliable support system along with tools and knowledge for the franchisee to succeed. The franchisee is expected to independently manage the operation of the business on a daily basis and to enhance the reputation of the company. When choosing a franchise system to invest in, it’s vital to evaluate the type of support that the franchisor can offer and how well its support is delivered.

One of the most common services that franchisors should provide to franchisees are:

  • Site selection and development assistance
  • Training
  • Recognizable brand name
  • Research and development of new products and services
  • Continuing marketing and advertising
  • Field and headquarters support

Franchisors must enforce brand standards to protect the franchisee from garnishing a lousy reputation. Since the customer views the franchise system as a branded chain consistently, excellent products and services delivered by the franchisee can benefit the entire system.

Related: The Difference Between a Franchisor and a Franchisee

Franchising’s Focus on Contractual Relationships

With a Franchise system, the owner of the brand does not operate or manage the location to service the customer because that’s the responsibility of the franchisee. After all, franchising is a contractual relationship between the licensor (the franchisor) and the licensee (franchisee). In a nutshell, the franchisor permits the franchisee to use the brand and business model to distribute the products and services to potential customers. 

Keep in mind that every franchise is a license, but not every license is a franchise. In the United States, a franchise is a specific type of licensing regulated by the Federal Trade Commission and by various states. The franchise exists when the franchisor licenses a franchisee permission to use the trademark. In addition to that, the franchisor supports the franchisee and also initiates a particular type of control. Before the business adventure can happen, the franchisee must pay the franchisor an initial or royalty (ongoing) fee. 

Because of the contractual relationship, it’s essential to have a franchise industry expert like California Franchise Attorney to draft up a thorough and detailed agreement between the franchisor and the franchisee. That way there will not be any misunderstanding or legal issues in the future.

Related: 10 Benefits of Owning a Franchise

Examples of Franchises in the US

McDonald’s 

The franchise fees for a McDonald’s is $45,000 with an initial investment of $1 million-$2 million. Fortunately, with a hefty investment, this is a highly recognized brand with support from experts with years of experience in the fast-food industry.

Dunkin’

The franchise fee for Dunkin’ Donuts is $40,000-$90,000, with an initial investment of $109,700 to $1 million. This business is recognizable in practically every state in the US, with over 32 locations worldwide. According to the Brand Keys Customer Loyalty Engagement Index, Dunkin’ Donuts is rated number one in customer service and satisfaction. They provide excellent support and training assistant with site selection, construction, operation, marketing, and management material to the franchisee.

Infographic showing top brands by customer loyalty

Source: Marketing Charts

Taco Bell

The franchising fee for Taco Bell is $25,000-$45,000, with an initial investment of $525,000-$2 million. This fantastic restaurant brand has been around for 50 years and has continued to develop brand recognition and financial stability.

The UPS Store

Initial investment for UPS store is $138,433-$460,000. The initial fee is $29,950. The UPS Store is a highly ranked franchise in the business service industry. It has excellent brand recognition, dedicated training and support, and financial stability. After all, 84% of the US population lives within 10 miles from the UPS store.

Planet Fitness

With Planet Fitness, the initial investment is $2,545,915, along with a 22% five-year growth rate and 1,494 total franchise units. The philosophy of Planet Fitness is a judgment-free zone, which makes first-time gym users feel comfortable throughout their fitness journey. The gym has over 40 million members, with franchisees taking home an annual income of $567,000.

Great Clips

The initial investment for Great Clips is $136,900-$259,400, with a franchise fee of $20,000. Great Clips have been in the business for over 30 years and have offered franchise owners with advanced technology training. It invests heavily on marketing and providing customers with the best experience.

Conclusion

Franchising can be a fun and exciting journey. It entails a robust legal team such as California Franchise Attorney to draft the contracts and agreements that details the relationship between the franchisor and franchisee. Once that is completed, the franchisee will have to pay the initial or royalty fee to obtain the trademark brand, support, marketing, services, and other tools from the franchisor to open and operate the business. Because the franchise brand is highly recognizable and has a huge fan base, it’s no doubt that the franchisor can experience growth and success in no time. 

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