What Is a Franchise?

The Franchise Relationship

A franchise is a legal and commercial relationship between the owner of a trademark, brand, or business system (the franchisor) and an individual or entity that wants to use that system to operate a business (the franchisee).

The franchisee gets: - A proven business model and operating system - Brand recognition and customer trust - Training and ongoing support - Marketing programs and national campaigns - Purchasing power from group buying

The franchisor gets: - Initial franchise fees (typically $20,000 to $50,000) - Ongoing royalties (typically 4% to 8% of gross revenue) - Rapid expansion without the capital of opening company-owned locations - A motivated operator running each location

Types of Franchise Relationships

**Business Format Franchising** is the most common type. The franchisee gets the complete business system: brand, products, operations manual, training, marketing, and ongoing support. Think McDonald's, Subway, Anytime Fitness.

**Product Franchising** (or distributorships) involves a manufacturer granting a dealer the right to sell its products. The dealer uses the manufacturer's brand but operates more independently. Think car dealerships or gas stations.

**Manufacturing Franchising** gives the franchisee the right to produce and sell the franchisor's product using their proprietary formula or process. Think Coca-Cola bottlers.

Key Franchise Statistics (2025)

• There are approximately 805,000 franchise establishments in the United States
• Franchising contributes over $860 billion to the US GDP
• The franchise sector employs roughly 8.7 million people
• Franchised businesses have a higher success rate than independent startups, though failure is still common

How Franchising Differs from Licensing

Licensing grants permission to use intellectual property (a trademark, patent, or process) but does not include the full business system, training, or operational support that defines a franchise. The legal distinction matters because franchises are regulated by the FTC Franchise Rule, while licenses are not.