1851

Franchises have become an important part of today’s business landscape, shaping industries around the world. From fast-food giants such as&nbsp;<a href="https://1851franchise.com/franchise-deep-dive-mcdonalds-franchise-costs-fees-profit-and-data-2720737#most-recent-stories">McDonald's</a>, renowned hotel chains such as&nbsp;<a href="https://1851franchise.com/franchise-deep-dive-courtyard-by-marriott-franchise-costs-fees-profit-and-data-2722517">Marriott</a> and even shipping services like&nbsp;<a href="https://1851franchise.com/should-you-invest-in-a-ups-store-franchise-2721225#stories">UPS</a>, franchises play a pivotal role in the economy.&nbsp;But what exactly makes a franchise into a “franchise”?<figure class="media"><div data-oembed-url="https://www.youtube.com/watch?v=vZQ37LnwCrg&amp;t=227s"><div class="iframely-embed"><div class="iframely-responsive"><iframe src="//cdn.iframe.ly/api/iframe?app=1&amp;api_key=fd3b6b3731f34f55ba1fe3&amp;url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DvZQ37LnwCrg%26t%3D227s" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen=""></iframe></div></div></div></figure><h3>Defining a Franchise</h3>At its core, a franchise is a business model that allows individuals (franchisees) to own and operate their own businesses using the established brand, products and services of a parent company (franchisor). The franchisee pays fees or royalties to the franchisor in exchange for the right to operate under the established brand and receive ongoing support for their business.&nbsp;Franchisors offer training programs to ensure that franchisees understand and adhere to the established business model. Ongoing support may include marketing assistance, operational guidance and updates on industry trends.<h3>Understanding Franchise Basics and Regulations</h3>Franchise contracts are complex and can differ from franchisor to franchisor.&nbsp;<a href="https://www.investopedia.com/terms/f/franchise.asp?utm_source=1851franchise.com&utm_medium=article&utm_campaign=what-is-a-franchise-a-comprehensive-overview-of-the-business-model-2724757" target="_blank" rel="nofollow">In most cases</a>, a franchise agreement includes three categories of payment to the franchisor:&nbsp;<ul><li>The franchisee must purchase the controlled rights (trademark) from the franchisor in the form of an upfront fee.</li><li>The franchisor often receives payment for providing training, equipment and other business advisor services.</li><li>The franchisor receives ongoing royalties or a percentage of the franchisee’s sales.&nbsp;</li></ul>Franchisees typically pay an initial franchise fee to the franchisor. This fee grants them the right to use the brand and receive initial training and support. Ongoing royalties, usually a percentage of the franchisee's sales, are paid to the franchisor for continued support, marketing and access to the brand.&nbsp;A franchise contract is temporary, with lengths of agreements ranging anywhere from five to 30 years. There can be serious consequences if a franchisee violates or prematurely ends the contract.&nbsp;In the U.S., franchises are regulated at the state level. However, in 1979, the Federal Trade Commission established The Franchise Rule, which is a legal disclosure that a franchisor must give to prospective buyers, including any risks, benefits or limits to the investment.&nbsp;<h3>The Pros and Cons of a Franchise</h3>Like any big life decision, it is important to weigh the pros and cons before making a commitment.&nbsp;Some benefits of buying a franchise include:&nbsp;<ul><li>Established Brand Recognition: Franchisees benefit from the instant recognition and trust associated with an established brand, reducing the time and effort required to build a customer base.</li><li>Proven Business Model:&nbsp;Franchisees receive a tried-and-tested business model, minimizing the risks associated with starting a new business from scratch.</li><li>Economies of Scale: Franchisors can negotiate bulk discounts on supplies and services, passing these cost savings onto franchisees and improving overall profitability.</li><li>Ongoing Support:&nbsp;Franchisees receive continuous support from the franchisor, including updates on industry trends, marketing strategies and operational guidance.</li></ul>On the other hand, challenges may include:<ul><li>Costs and Fees:&nbsp;The initial franchise fee and ongoing royalties can be significant, impacting the franchisee's profitability.</li><li>Limited Autonomy: Franchisees must adhere to the franchisor's guidelines, limiting their ability to make independent business decisions.</li><li>Dependence on Franchisor Success: The success of a franchise is closely tied to the overall success and reputation of the franchisor. Any negative publicity or issues at the corporate level can affect individual franchisees.</li></ul>In most cases, the benefits outweigh the drawbacks. Franchising is a diverse and dynamic model that offers prospective entrepreneurs the opportunity to find success through business ownership.&nbsp;

What Is a Franchise? A Comprehensive Overview of the Business Model

1851 Franchise

For individuals looking to enter the world of entrepreneurship, investing in an already-established franchise can be a great way to go. 

what-is-a-franchise-a-comprehensive-overview-of-the-business-model

Sola Salons

Sola Salons Eyes Southern Connecticut for Strategic Franchise Expansion

sola-salons-eyes-southern-connecticut-for-strategic-franchise-expansion

Woodhouse Spas

Photo of exterior of Woodhouse Spa location with people walking around outside

Woodhouse Spas: A Recession-Resistant Franchise Opportunity With Unmatched Support

woodhouse-spas-recession-resistant-franchise-opportunity

Sylvan Learning

Pasadena Weekly: Sylvan Learning Pasadena Offers Free Tutoring for Students Impacted by Local Fires

sylvan-learning-pasadena-free-tutoring-fire-support

BIGGBY COFFEE

BIGGBY® COFFEE Names Erin Kaylor as President, Reinforcing People-First Vision

BIGGBY® COFFEE Names Erin Kaylor as President, Reinforcing People-First Vision and Growth-Focused Future

biggby-coffee-names-erin-kaylor-president

Workout Anytime

Design with Workout Anytime logo and photo of Larry Brayman

Workout Anytime Welcomes Larry Brayman as Chief Marketing Officer, Strengthening Leadership Team Amid Growth Surge

workout-anytime-larry-brayman-cmo

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

The Future of Franchising: Trends and Predictions for 2025 and Beyond

the-future-of-franchising-trends-and-predictions-for-2025-and-beyond

Restaurant Business: Crumbl Cools Its Expansion, Refocuses on Profitability

restaurant-business-crumbl-cools-its-expansion-refocuses-on-profitability

Franchise Face-Lifts: Why Major Restaurant Brands Are Betting Big on Remodels

franchise-face-lifts-why-major-restaurant-brands-are-betting-big-on-remodels

How New Tariffs Are Causing Price Hikes and Surcharges for U.S. Businesses and Franchises - 1851

Tariffs Prompt Price Hikes, Surcharges as Businesses (and Franchises) Brace for Rising Costs 

tariffs-prompt-price-hikes-surcharges

Pizza Hut - EYM Group - Chapter 11 Bankruptcy - 77 Pizza Hut Locations Sold - 1851 Franchise

77 Pizza Hut Locations Sold After Franchisee Bankruptcy Filing

pizza-hut-franchisee-bankruptcy-eym-group

Layoffs Surge to Pandemic-Era Highs, Opening Doors for Franchise Growth

layoffs-surge-to-pandemic-era-highs-opening-doors-for-franchise-growth

&pizza - Fast-Casual Pizza Chain Begins Franchising - 1851 Franchise

&pizza Embraces Franchising To Fuel Bold New Growth Strategy

andpizza-franchising-ceo-mike-burns

Franchisee spotlight image with Randy and Sandy Craft, Children's Lighthouse logo on blue background

The Crafts’ Successful Journey from New Parents to Children’s Lighthouse Franchisees

the-crafts-successful-journey-from-new-parents-to-childrens-lighthouse-franchisees

Franchise Success Stories: Inspiring Tales from the Front Lines

franchise-success-stories

Image of building outline hovering over person's hand

How To Choose the Right Franchise: A Step-by-Step Guide to Success

how-to-choose-the-right-franchise-step-by-step

Most Profitable Restaurant Franchises To Own in 2025 - 1851 Franchise

The Most Profitable Restaurant Franchises to Own in 2025

most-profitable-restaurant-franchises-to-own

Amateur Bodybuilder and Business Partner Bring Passion for Fitness to World Gym Franchise in Fulton, New York

amateur-bodybuilder-and-business-partner-bring-passion-for-fitness-to-world-gym-franchise-in-fulton-new-york

DonutNV Franchise Costs, Fees, Profit and Data for 2025

franchise-deep-dive-donutnv-franchise-costs-fees-profit-and-data

What Is a Franchise? A Comprehensive Overview of the Business Model

MORE STORIES LIKE THIS