The franchisee will pay an initial upfront fee for the right to do business under the trade name of the franchisor. This sum will also include all the training and equipment the franchisee needs to be able to deliver exactly the same products and services as the parent business. That is why every Domino’s Pizza (this is not an advert by the way) will taste exactly the same wherever you go, despite the fact that each restaurant will be owned by an independent third party.
Once the franchisee begins to trade, it will also pay an ongoing royalty payment, which could be on a monthly, quarterly or annual basis. This payment will usually be a percentage of the franchisee’s revenue.
Related: Franchise FAQ - A Basic Guide
Most franchising deals will include:
- Site selection.
- Assistance with development of the site.
- Training for the franchisee and their management team
- Initial and ongoing marketing and advertising.
- Research and development of new products and services.
- Ongoing support and assistance from head office.
The shop, restaurant, or alternative business, will always be an exact replica of the parent business to keep the brand consistent. This means that the franchisee will not have as much control over the business as they would if they set up on their own enterprise. However, they will have the added security of investing in an established brand and a formula that has been proven to be successful.
Control of a franchise is generally quite strict, and will include everything from the staff uniforms to the marketing literature that appears in the store. In most cases, the pricing will also be standardised across all franchises to keep the brand’s advertising and promotions streamlined and consistent. Once all the training has been completed, the franchisee will be responsible for the day-to-day running of the business and will make or lose money based on its individual performance.
As part of some franchising deals, the franchisee may also receive exclusive territory rights, which ensure that another franchise will not be sold within a certain distance of their business. The franchise deal will also include a term, typically 5-10 years, after which time the franchisee will usually have the right to renew the franchising deal if they’re willing to cough up more cash.