What is a Franchise?
A Franchise is granted by The Franchisor to the Franchisee for the rights to use their name and brand to sell their products or services within a specified area or territory, for a specific period of time. As practiced in retailing, franchising offers franchisees the advantage of starting up quickly based on a recognized brand or trademark, a proven concept with training and ongoing support as opposed to developing these on their own.
Two important fees charged by a franchisor:
An Initial Franchise Fee is a one-time, up-front fee that is designed to help reimburse the Franchisor for the cost of recruiting of franchisee’s, franchisee training and advisory services, etc. that is provided to the franchisee.
A Royalty Fee or License Fee is normally a monthly fee paid to the franchisor, which can be a flat fee or a percentage of the franchisee’s sales and is designed to give the Franchisee access to the brand name, the products or services offered, the systems and support provided in the operation of the franchise.