The primary reason for the franchise arrangement is the increased net profit for the franchisee in using the franchisor’s name, logo, brand, or trademark. The franchisor charges an upfront fee called a Franchise Fee, monthly Royalties, in some agreements a License Fee and Marketing/Advertising minimums. These additional costs to the franchisee are paid to use the franchisor’s name.
Franchise Licensing Fee
In some franchise agreements, the franchisor charges a license fee or some other charge to use the logo, trademark, or copyright. This fee is assessed because it is possible that the franchisor has to pay some third party for the right to use the trademark, logo, patent, or copyright in the franchise system. In rare situations, the franchisor is merely a clearinghouse or territorial controller for the franchise network and therefore, this fee pays for the territorial grant.
A franchise relationship is a partnership between two parties. The primary party is the Franchisor. This entity owns a master group of similar business selling/providing the same product or service. The Franchisor sells a ‘Right’ to his name and his conditions in exchange for a royalty fee. The second party is the Franchisee.