Important Terms for New Franchisees | Franchise Strategy Partners

Learning the terminology used in the franchising industry is important for franchisees, especially those who are entering the industry for the first time. Understanding what certain terms mean, how they affect you, and the differences and similarities between them can make your job easier.

Not sure where to even begin? This blog will discuss and define some of the common and important terms you should know when it comes to being a franchise owner!

Franchisors & Franchisees

The relationship between a franchisor and a franchisee is one of the most important in the franchising industry. And while the names are similar, the two positions have different responsibilities.

Franchisors, which are often big brands or businesses, allow franchisees to run one of their businesses under its name and business model. The franchisor may also provide a franchisee help with marketing, training and guidance when it comes to business practices.

The franchisee is responsible for taking that assistance to help grow the name and reputation of the brand. This is done by following the brand’s business model and adhering to its guidelines.

Franchise Fees & Royalty Fees

Learning about the different fees a franchisee must pay can be overwhelming. The most common fees you’ll encounter are franchise fees and royalty fees.

A franchise fee is a one-time fee that essentially opens the door for the franchisee. This fee is paid to the franchisor by the franchisee, and it can cover training costs, equipment and the right to use the brand’s name.

Royalty fees are ongoing payments, and the amount that is paid is often determined by a franchisee’s sales. These fees are also paid to the franchisor, either on a monthly or quarterly basis, and they cover the continuous use of branding, marketing and much more.

Franchise Disclosure Document

A Franchise Disclosure Document (FDD) is a legal document that franchisors are required to give potential franchisees. This document provides franchisees with everything they need to know. Among the information covered in the FDD is the franchisor’s history, how much is required for the initial investment and information about fees you’ll need to pay.

It will also cover information about financing arrangements and the franchisor’s financial statements, among other things. The point of this document is to help you make an informed decision when selecting a franchise.

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