What is a Franchise

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What Is A Franchise?

Understand what is a franchise and the different types of franchises. The word "franchise" is actually a way to describe several very different types of business agreements.

There are business format franchises and product or trade name franchises. Under product and trade name franchises there are distributorships and dealerships, agencies and licensees. It should be noted that some franchises are actually multi-level marketing plans. Most, but not all franchises guarantee exclusive territorial rights. Franchise agreements can be from five to twenty years, and there may be penalties for terminating the contract prematurely.

Business Format Franchises:
These are what most people think of when you say franchise. It is a business established under an agreement that the franchisee has the right to market a product or service using the trademark, ideas and products of the franchiser for a fee and a percentage of the gross monthly sales. It operates under the Franchiser business philosophy. In this type of franchise the “franchiser” provides the product, trade names, management training and support, advertising, operating procedure, quality assurance standards and facility design. A good example of this for home based businesses would be an automatic car-wash franchise.

Product Franchising or Trade Name Franchising:
This type of franchising only involves a product, trademark and royalties in the contract, but the franchiser does not regulate the method in which the franchisee conducts his business. Under this type of franchising there are also different types of agreements:

Dealerships and Distributorships:
These product or trademark franchises own the rights to sell the franchiser product under their own trademark rather than the franchiser's name, with no restrictions on how the business is run.

Licensees:
These product or trademark a license to make and sell the franchiser product with few, if any, restrictions on how to run their business. Agencies:
These product or trademark franchises own the rights to sell products or services on behalf of a supplier. A good example of this may be vending machine franchises.