Franchise Lingo: Let's Start with the Basics

Let's start with the basics. The franchise industry consists of two main components:

1. Product and Trade Name Franchising

Product and trade name franchising includes automotive and truck dealers, soft drink bottlers, and gasoline service stations. These franchises are essentially distributorships and as a group, they are far larger than the participants of business format franchising. Our site does not focus on this franchise form and instead, devotes much of its attention to business format franchising.

2. Business Format Franchising

Business format franchising is a method of market expansion by which one business entity expands the distribution of its products and/or services through independent, third-party operators (hopefully, you).

Franchising occurs when the operator of a concept or system (the franchisor) grants an independent businessperson (the franchisee) the right to duplicate its entire business format at a particular location and for a specified period, under terms and conditions set forth in the contract (franchise agreement).

The benefits of business format franchising include the following:

  • An established customer base
  • A proven way of doing business
  • Brand equity
  • Ongoing assistance with support activities such as marketing and purchasing

Next: Franchise Lingo: Beyond the Basics