What is a Franchise?
- It occurs when one business sells the right to use and sell its products to another business
- If you were having problems coming up with an idea then you could buy the rights to sell another business's product or service and then make your money that way
- Franchisor ------> Sale of Rights -----> Franchisee
How do they work?
There are many different types of franchises but the main elements of agreements are:
- The franchisor sells the right to the product for an initial fee then ask for some of the profit
- The franchisee receives the right to the name and systems used by the franchisor. This can include such aspects such as materials and training methods.
- In the case of a big company such as McDonald's, they will only want to sell it to franchisees who play by the rules. They will have a very strict guideline on what the franchisee can do with the company's name, brand, logo etc.