What is a Franchise?

January 30, 2025

A franchise is a business model that allows an entrepreneur (the franchisee) to operate a business under an established brand by following a set of rules, processes, and standards provided by the franchisor. This model enables the franchisee to benefit from the experience, reputation, and support of an existing company while being responsible for their own establishment.

In this article, we will break down what a franchise is, how it works, its advantages, and why it can be a great opportunity for those looking to start their entrepreneurial journey.

Definition of a Franchise

A franchise is based on a contractual agreement between two parties: the franchisor and the franchisee. The franchisor is the company that owns a proven business concept and expertise, while the franchisee is an individual or company that pays for the right to operate that concept in a designated territory.

This model relies on several key principles:

The right to use a brand – The franchisee can use the franchisor’s name, logo, and branding.
Access to know-how – The franchisee benefits from the operational model, training, and tools provided by the franchisor.
Ongoing support – The franchisor provides continuous assistance in management, marketing, and business development.

How Does a Franchise Work?

In a franchise, the franchisee purchases the right to operate a business concept within a defined territory. In return, they typically pay an initial fee (franchise fee) and ongoing royalties based on revenue. The franchisor provides a structured support system and training to ensure the franchisee runs their business effectively while maintaining the network’s standards.

The franchise model is a cooperative relationship where both parties benefit:

The franchisor – Expands its brand and network without managing each individual location.
The franchisee – Leverages the franchisor’s reputation and tested business model for a greater chance of success.

Types of Franchises

There are several types of franchises, depending on the level of control exerted by the franchisor:

Product Distribution Franchise – The franchisee sells products under the franchisor’s brand.
Service Franchise – The franchisee provides services using the franchisor’s brand and business model.
Industrial Franchise – The franchisee manufactures products according to the franchisor’s specifications.

Advantages of the Franchise Model

Becoming a franchisee comes with numerous benefits:

Training and Support – The franchisor provides initial and ongoing training to help franchisees succeed.
Lower Risk – Since the business concept has already been tested, franchisees face fewer risks compared to independent entrepreneurs.
Brand Recognition – Franchisees benefit from an established brand’s reputation, making it easier to attract customers.
Shared Resources – Franchisees can take advantage of resources such as group purchasing negotiations and large-scale marketing campaigns.

Obligations of the Franchisee

As a franchisee, you must adhere to specific obligations:

Follow established processes – You must comply with the franchisor’s operational procedures regarding products, services, and overall business management.
Pay fees and royalties – Most franchisees are required to pay an initial franchise fee, as well as ongoing royalties based on revenue.
Maintain consistency – Franchisees must ensure their products and services meet the franchisor’s quality standards to uphold the brand’s integrity.

Conclusion: Why Choose Franchising?

The franchise model is an excellent opportunity for individuals who want to become entrepreneurs without starting from scratch. It offers the independence of running a business while benefiting from a proven system. However, it is crucial to fully understand the franchisor’s requirements and ensure that the chosen concept aligns with your aspirations and skills before committing.

If you want to learn more about franchising and how to get started, check out these key resources: