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 franchisor is the first party to a franchise agreement. This party is generally the controller in the relationship and provides the history and name to the franchisee in exchange for a royalty and/or commission.
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.