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.
The franchisee is the second party to a franchise agreement, this party owns and operates the actual business. They provide the capital, the labor and perseverance to make the business go. The franchisee is obligated to the franchisor for royalties and commissions for the use of the franchisor name.
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.