10 Common Franchise Terms that You Need to Know

If you are new to franchising then industry jargon will be hard to understand. Here are a few common franchise terms that you should be aware of.

01. Franchisor

A Franchisor is the owner of the franchise brand and business system. Franchisors can license their franchise to various franchisees.

02. Franchisee

A Franchisee is a person or group who licenses the right to carry out business under a particular franchise trademark.

03. Franchise Agreement (FA)

A Franchise Agreement is a document that includes the rights, responsibilities, and obligations of the franchisor and franchisee.

04. Franchise Disclosure Document (FDD)

A Franchise Disclosure Document is a legal document that a franchisor should provide every prospective franchisee.

It is mandated by the Federal Trade Commission and contains details pertaining to the franchisor’s finance, history, contract obligations, investment cost, etc.

05. Franchise Fee

The Franchise Fee is the fee that needs to be paid to the franchisor immediately after signing the franchise agreement.

06. Royalty Fee

The Royalty Fee is a regular payment made to the franchisor on a yearly, monthly, weekly, or daily basis by the franchisee.

It is usually a percentage of sales for letting the franchisee use their franchise system, training, support, etc.

07. Initial Investment

The Initial Investment is the money required for a franchisee to open, setup, and operate a franchise business in a particular location for 3 months or more.

It includes start-up and operating expenses.

08. Term of Agreement

The Term of Agreement is the duration of franchise agreement ranging from 5 to 20 years.

At the end of the term, if the franchisee is performing well then the franchisor may decide to renew your agreement.

09. Single & Multi-unit Franchisee

A Single-unit Franchisee is a person or group who has purchased one franchise location. A Multi-unit Franchisee is a person or group who has purchased two or more franchise locations.

10. Area Developer

An Area Developer is a franchisee who has purchased the rights to open multiple franchise units within a certain area and time frame.

For more information on common franchise terms, Contact Us.