Common Franchising Terms Explained

Common Franchising Terms Explained

An A – almost Z of common franchising terms

If you’re entering the world of franchising for the first time, the number of new terms and phrases involved can be confusing.

To help you find your feet, we’ve put together a franchise dictionary of the most important things you need to understand before starting out on your new career.

Area Franchise – a franchise relationship that allows the franchisee to open multiple locations, usually within a pre-agreed geographical limit.

Business Format Franchising (BFF) – a franchise occurs when the franchisor licenses its trade name, brand and operating methods to a person or group -the franchisee – which then agrees to operate according to the terms of the franchise agreement.

Churning – a failing location that’s acquired by a franchisor and sold to a franchisee even though the franchisor was unsure of the location’s viability.

Distributorship – the right granted by a manufacturer or wholesaler to sell their products.

Exclusive Territory – a geographically defined area inside which a franchisee’s rights are protected.

Feasibility Study – an assessment of the potential of a company to franchise, or of the potential success of a franchise within a specific area.

Grey Marketing – when a franchisee purchases products or merchandise under franchisor’s negotiated agreements and then uses them in another business or sells them to another company.

International Franchise Association (IFA) – founded in 1960 as a membership organisation of franchisors, franchisees and suppliers.

Key Supplier – a supplier whose products or services are an essential part of the franchise system.

Lead – a person or group that meets the minimum criteria to become a franchisee, and who is invited to submit a franchise application.

Master Region – A large territory that is acquired by a franchisee with the intention of subdividing it and reselling individual franchise locations.

Non-Compete Clause – restrictions placed on franchisees regarding competing with the franchised company.

Operations Manual – a comprehensive document that contains all of the
information necessary for the franchisee to be able to operate the business.

Product and Trade Name Franchising – the licensing of a franchisee to sell or distribute a specific product using the franchisor’s trademark, trade name and logo.

Quality Standards – the standards specified by the franchisor for the operation of the business.

Royalty Fee – a percentage of gross sales paid by the franchisee to the franchisor on an annual or basis.

Start-Up Costs – the initial investment that the franchisee will make, also known as an Item 7 disclosure.

Turnkey – a term used to describe a location that is provided to a franchisee fully equipped and ready to operate.

As you become more involved in the world of franchising, you’ll soon become familiar with terms and phrases that apply to your industry and you specific situation. After a year or two, you’ll be able to write a franchise dictionary of your own.

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