If you are new to franchising you may find franchising jargon a little confusing.
This brief guide will explain some commonly used terms and phrases.
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.
Buy Back – If the franchisee can no longer operate the franchise the franchisor may purchase the franchise.
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.
Franchisee – the owner of a franchise opportunity.
Franchisor – the brand that have formed the franchised business model, in order to replicate their business though a network of franchisees.
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.
Franchise Agreement – Legal document detailing the obligations of the franchisor and franchisee.
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.
Return on Investment – (ROI) Projections provided by the Franchisor to show projections of expected earnings, the break even point prior to making profit.
Royalty Fee – a percentage of gross sales paid by the franchisee to the franchisor on an annual or basis.
Termination – the franchise agreement will detail contractual breaches and the measures to remedy, these could lead to termination of the franchise, this means you could lose your franchise.
Turnkey – a term used to describe a location that is provided to a franchisee fully equipped and ready to operate.
Territory – An agreed area for the franchisee to operate the franchise. The size of the territory will vary between franchisors.