Franchising
- Franchising is a form of business organization in which a firm that already has a successful product or service (franchisor) licenses its trademark and method of doing business to another business or individual (franchisee) in exchange for a franchise fee and an ongoing royalty payment.
- Some franchisors are established firms (like McDonald’s) while others are first-time enterprises being launched by entrepreneurs.
Product and Trademark Franchise
- An arrangement under which the franchisor grants to the franchisee the right to buy its products and use its trade name.
- This approach typically connects a single manufacturer with a network of dealers or distributors.
- For example, General Motors has established a network of dealers that sell GM cars and use the GM trademark in their advertising and promotions.
- Other examples of product and trademark franchisors include agricultural machinery dealers, soft drink bottlers, and beer distributorships.
Business Format Franchise
- An arrangement under which the franchisor provides a formula for doing business to the franchisee along with training, advertising, and other forms of assistance.
- Fast-food restaurants, convenience stores, and motels are well-known examples of business format franchises.
- Business format franchises are by far the most popular form of franchising, particularly for entrepreneurial firms.
- Area Franchise Agreement:
- Master Franchise Agreement
- Steps to Franchising a Business
