What Does it Mean to Franchise?
If you eat at fast-food restaurants like McDonald's, get your muffler fixed at Midas or buy coffee or doughnuts at Dunkin' Donuts, you've experienced the essence of a franchise: a business offering a service or product that is repeatable and expandable.
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Franchise Definition
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Franchising is a method of distributing products or services, according to the International Franchise Association, a membership organization for franchisers, franchisees and suppliers. In franchising, a franchiser licenses its brand name, product or service and in some cases, its way of doing business, to a franchisee.
Types of Franchising
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There are two types of franchising: product-distribution franchising and business-format franchising. The difference is that in product-distribution franchises, franchisers do not provide the system for running the business, while business-format franchises involve the licensing of not only the product or service but also the method of doing business. Pepsi and Exxon are examples of product-distribution franchises, while KFC, Radio Shack and 7-Eleven are examples of business-format franchises, according to the IFA.
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Franchise Relationship
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In return for licensing its brand name, product or service--and in the case of business-format franchises, the way of doing business--the franchiser receives initial and ongoing fees, and the franchisee agrees by signing a contract to follow the franchiser's rules, according to "Franchising for Dummies" by Michael Seid and the late Dave Thomas, founder of the Wendy's franchise. The franchiser also provides support to the franchisee in such areas as design and construction; financing; training; and marketing.
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- Photo Credit fast food image by Kathy Burns from Fotolia.com
