Franchising is a method of business operation where a person such as yourself takes on the business plan, philosophy and brand label of an existing concern. The business then operates as a franchisor, granting the you (the franchisee) the right to use and distribute products under its trademark as part of the agreement. The franchisee also receives trade secrets relevant to operating the business consistent to the expected quality of the operation.
In exchange for these usages, the franchisee gives to the franchisor a fee – a percentage of the gross monthly sales from the business, and royalty fees for the use of the trademark. The franchisee also takes on the responsibility of the standards of quality and the operational procedures from the franchisee. The franchisee may be bound by the terms of the contract to buy supplies from certain places, and make concessions in the interests of brand uniformity and consistency.
Usually franchises contain fully established strategies and provide you with limited amount of input regarding how to go about running it. Restaurant chains are obvious examples of this type of franchising. While such entities are franchises, the term “franchise” is not limited to them.
Product or trade name franchising is a looser form of franchising where the franchisee sings up for the right to distribute a brand of product only, without clearly defined guidelines for running the business. A prime example of this is vending machine ownership. An owner may enter into a franchising contract to use a specific vending machine for a specific product, such as a trademarked brand of beverage.