What Is Franchising? How It Works and Why It Wins
Summary: Franchising lets you run a business under an established brand's name and systems. In return, you pay an initial fee and ongoing royalties. This article explains how the franchisor and franchisee relationship works and the most common types of franchises. It also covers why many entrepreneurs choose a franchise over starting a business from scratch.
Franchising is a business model in which an established company (the franchisor) gives an individual (the franchisee) the right to run a business under its name, trademark, and operating systems. In return, the franchisee pays an initial franchise fee and ongoing royalties. The result is a business you own and run yourself, built on a model that has already been tested.
Being your own boss has long been part of the American dream. About 40% of traditionally employed people are considering starting a business in the next two years. But starting from scratch comes with a lot of obstacles.
Franchising offers another path. It lets you be in business for yourself without being in business by yourself.
How Franchising Works
Every franchise relationship has two sides. Each one brings something different to the table.
The Franchisor
The franchisor owns the brand and the business model. Very few franchises start from scratch. Most began as successful small businesses that later moved to a franchise model. The franchisor typically provides:
The brand name, trademark, and reputation
Proven operating systems and processes
Initial training and ongoing support
Brand-level advertising and marketing
Vetted vendors and group purchasing power
The Franchisee
The franchisee buys the right to operate a location of that brand. They invest in opening the business, follow the brand's systems, and run the day-to-day operations.
The Fees
Franchisees usually pay two main types of fees:
Initial franchise fee: a one-time fee for the right to open under the brand.
Ongoing royalties: regular payments to the franchisor for continued use of the brand, systems, and support.
Many franchise agreements also include an exclusive territory. That's a defined geographic area where only that franchisee can market the brand's services.
What Types of Franchises Exist?
Most people think of fast food first. But franchising reaches far beyond restaurants. There are more than 3,400 franchise brands in the United States, and more than 300 independent businesses move to the franchise model each year. [VERIFY: add a source or update these numbers.]
Here are some of the most common franchise categories, with well-known examples:
Food and beverage: quick-service restaurants, coffee shops, and more
Retail: hardware, clothing, and specialty stores
Cleaning and restoration: Servpro, Jan-Pro, Molly Maid
Business services: The UPS Store, Real Property Management, FastSigns
Home services: Mr. Appliance, Lawn Squad, Top Rail Fence
Automotive: Midas, Ziebart, Tire Pros
Health and wellness: Hand & Stone Massage, Senior Helpers, Anytime Fitness
Education: Kumon, The Learning Experience, Primrose Schools
Lodging: Hilton, Marriott, Wyndham
Technology and security: TeamLogic IT, Signal, Security 101
Almost any business that sells a product or service can become a franchise. With so many categories, it's easier to find one that fits your interests, goals, and budget.
Why Franchising Wins Over Starting From Scratch
The initial franchise fee and royalties can be eye-opening at first. But opening a business is expensive either way.
You'll Invest Either Way
When you start a business on your own, you still pay for everything it takes to open. That spending just happens in smaller amounts over a longer stretch of time, and without anyone to support you. In many cases, the total cost of going it alone ends up higher than the initial franchise fee.
You Don't Have to Guess
Independent owners base every decision on their own best guess. Without expert advice, mistakes are easier to make and harder to recover from. A franchise gives you a different starting point.
When you buy a franchise, you get access to:
Proven systems that have been tested over time
Vetted concepts, suppliers, and vendors
A franchisor and a network of owners who have "been there, done that"
A brand customers already know and trust
Together, those advantages smooth out a lot of the bumps that come with business ownership. For a closer look at each one, read 5 Benefits of Owning a Franchise Business.
What This Means for Franchise Brands
Many people who could be strong franchise owners never seriously consider franchising. Often they simply don't understand how it works. That's an opportunity for franchisors.
Clear, educational content helps future owners see franchising as a real option. It also helps the right candidates find the right brand. Knowing who those candidates are is the first step. The Franchise Buyer Personas series covers 15 buyer types and what each one needs to hear. For a look at the costs, leads, and conversion trends that shape franchise development today, see the Franchise Development Market Update.
Frequently Asked Questions
What is franchising in simple terms?
Franchising is when an established company lets an individual run a business using its brand name, trademark, and operating systems. The individual, called a franchisee, pays an initial fee and ongoing royalties. In return, they get a proven model, training, and support from the company, called the franchisor.
What is the difference between a franchisor and a franchisee?
The franchisor owns the brand and the business model. The franchisee buys the right to operate a location under that brand. The franchisor provides systems, training, and support. The franchisee runs the day-to-day business and pays fees to the franchisor.
Is franchising only for restaurants?
No. Food and beverage is the best-known category, but franchising covers retail, home services, cleaning and restoration, business services, automotive, health and wellness, education, lodging, and more. Almost any business that sells a product or service can become a franchise.
Ready to Reach More Future Franchise Owners?
Franchise Ninja helps franchise brands find in-market candidates, check territories in seconds, and turn interest into qualified conversations. Schedule a meeting with a Franchise Ninja product specialist to see how it works for your brand.
