are several terms used in the concept of franchising that require explanation.
Some of them are in everyday use but are not always understood correctly.
Some of the words are explained here to understand them easily: -
package or agreement
or continuing fee
9. Pilot franchise
12. Franchise system
13. Franchise outlet
of the agreement
Franchising is a form of marketing and distributor of goods or services
in which a company ( the franchisor) permits an individual or company
(the franchisee) to sell or provide its products or services as per
its directions. In other words franchising is a contractual relationship
between the franchisor and franchisee in which the franchisor offers
or is obliged to maintain a continuing interest in the business of franchisee
in such areas as know-how and training; where in the franchisee operate
under a trade name, format or procedure owned or controlled by the franchisor
and in which the franchisee has made or will made a substantial capital
- Franchisor is a person or
company who has developed a product, service or concept and expanding
it through franchising by permitting other
persons (the franchisees) to do business under his ( the franchisor)
name, trademark and operational methods. The franchisor also provides
complete training, assistance and advertisement materials to run the
- Franchisee is an individual or company, who purchase the
right to do business using the franchisor's tried and tested products,
services or business concept.
4. Master franchisee
or a licensee: - Generally in international market, many
company expand their business through a network of master franchisee
or licensee. A master franchisee or licensee is a person or company,
who has the right or license for a particular territory generally a
country. The master franchisee or licensee has the right to appoint,
train and receive fees from its franchisees in his territory.
package or agreement: - Franchise package/agreement is an
agreement between the franchisor and franchisee. It defines the obligations
of the franchisor and franchisees throughout the duration of the franchise.
It defines the products, services or business concept of the franchisor,
the duration of the agreement, the territory in which the franchises
will operate, frequency and method of payment of royalty or all continuing
fees. It also explains extension and termination clauses under which
either party may extend or terminate their business arrangement.
manual: - The operating manual is a 'blueprint' for day to
day operations of the franchise. It includes specifications and directions
on how to conduct the franchise activities on day to day basic. It specifies
equipment specification, product presentation and preparation, financial
and accounting methods staff selection and
their job specifications, advertising methods and tools, customer relations
and business promotion activities. It is also a source of reference
for all types of questions which may arise during the franchise business
franchise fee: -
This fee is paid by franchisee to cover the expenses
of franchisor towards recruiting, training and setting up the franchise
business. This also include fee for the right to use trademarks, management
assistance and other services to be provided by the franchisor.
or continuing fee: - This is a regular fee paid by the franchisee
to the franchisor or the master franchisee on an ongoing basis may be
monthly, annually or certain percentage of the gross revenue received
by the franchisee. The mode of calculation and time of payment is usually
mentioned in franchise agreement or package.
franchise: - Pilot franchise means a franchise unit run by
the franchisor itself. By operating a pilot
franchise, the franchisor can prove the viability of its concept and
system. The pilot franchise enable the prospective franchisee to assess
the viability and profitability before taking any decision.
- Trademark is a business name or symbol by which one can
identify a product or service. Trademark is registered and owned by
the franchisor. The franchisor has full rights
to use the same and no other persons can use it without permission of
the franchisor. By interning into an agreement of franchise, the franchisee
get the right to use trademark of the franchisor but he does not become
the owner of the trademark.
- The territory is a geographical area within which the franchisee
has the right to conduct the franchise business. The territory may be
identified in terms of city, town, district, state or country. In one
territory area one franchisee is appointed to conduct franchise business
it is just to avoid competition among the franchisees.
Franchise system: - Franchise system includes the various
components of a franchise business like franchise unit whether owned
or franchised, the franchisers, administration center, franchisees,
products or service etc.
outlet or unit: - A franchise outlet or unit means an individual
franchise business center, whether owned or franchised. A franchisee
may operate more than one franchise outlet or units.
of the agreement: - The duration of the agreement, is the
time specified in the franchise agreement during which the franchisee
can operate the business activities using franchisor's name, trademark,
product or service and method of operations.