Franchising

Franchising is a contractual arrangement in which one party, the franchisor, grants another party, the franchisee, the right to use its trademark, brand name, business format and operating know-how to sell goods or provide services within a defined territory, in return for an upfront franchise fee and ongoing royalty payments (usually a percentage of the franchisee's sales).

Two broad types of franchising are commonly distinguished. In product/trade-name franchising, the franchisee mainly distributes the franchisor's branded product (as in a vehicle dealership), but the franchisor exercises comparatively little control over how the franchisee's business is actually run day to day. In business-format franchising, the franchisor licenses an entire, standardised way of doing business — the trademark, an operations manual specifying processes and quality standards, training for the franchisee's staff, marketing support, and continuing supervision — so a customer's experience is meant to be nearly identical at every outlet, whichever franchisee runs it. …