Franchise Dictionary / Glossary

Advertising Fee: Fee paid to the Franchisor as the franchisee’s contribution to the marketing effort. This is usually a percentage of the franchisee sales and is often paid on a monthly basis. This ranges from 3 to 5%, be cautious when a franchisor claims that they will handle all of the sales and marketing for you. Generally, this contribution is for annual marketing. The Franchisee would need to do a lot of Promotions / Below-The-Line Activities to drive footfalls for their business.  

Business format franchising offers a variety of services to the franchisees. They provide the franchisee use of trademarks and logos, as well as a complete system of doing business. They will assist the franchisee with site selection, interior layout and design, hiring and training, advertising and marketing, product supply and more. The franchisee pays an up front franchise fee and agrees to pay continuing royalties to the franchiser that help the franchiser provide research, development and support for the entire system. There are many examples of business format franchising, including – fast food restaurants, estate agents, recruitment agencies, retail firms and so on. Examples include, Aptech, Monginis, Sankalp, Real Estate Bank of India and so on. 

Documentation: 

Training Manual: The Training Manual are of two kinds, the Franchisee Training Manual, the manual being used for the training of their franchisees and the Employee Training Manual, this manual is used for training of the franchisee's and the employees of the franchisee's to help them understand and learn more about the brand, the customer group, marketing techniques and so on.  

Operations Manual: A written document which clearly explains the franchisor’s standards of operation, and identifies the operational tasks required to establish and operate the franchise business. The operations manual supports and promotes the use of consistent and uniform day-to-day procedures at each franchise unit within the network franchise unit in order to maintain the quality of service and products in every franchise outlet.

Sales and Marketing Manual: This complements the operations manual, the sales and marketing manual establishes and states the policies governing the Franchisor's Sales and Marketing standards and practices. It also mentions where the franchisor has advertised in the past and what it intends to do in the future, the result generated, what marketing mediums work best for them to get closer to their customer base. It also mentions about any CRM software that they utilise to develop constant contact with their consumers. It may also include a list of ready-to-use templates of print ads, flash banner ads (online), email marketing any other mediums. 

Emerging / Fast growing Franchisors: Franchisors that are aggressively growing and expanding would be classified as fast growing franchisor. Generally in year 2 or 3, franchisors are rapidly able to grow 3X - 5X. Every franchisor goes through a business cycle, introduction, growth, maturity. 

Franchise: A franchise is a legal agreement that allows one organization with a product, idea, name or trademark to grant certain rights and information about operating a business to an independent business owner. In return, the business owner (franchisee) pays a fee and royalties to the franchisee.

Franchise Agreement: Franchise agreement is a legally binding document for the franchisor and the franchisee, it lays out the rights and obligations of both the franchisor and the franchisee. The agreement will contain provisions covering, in considerable detail, the obligations of the franchiser (the company) and franchisee (you) regarding operating the business; the training and operational support the franchiser will provide (and at what cost); your territory and any exclusivity; the initial duration of the franchise and any renewal rights; how much you must invest; how you must deal with things such as trademarks, patents and signs; what royalties and service fees you will pay; tax issues; what happens if you should want to sell or transfer the franchise; advertising policies; franchisee termination issues; settlement of disputes; by the company, operating practices, cancellation and so on and so forth. 

Franchise Disclosure Document:  This is a legal document that should be provided by the franchisor to the prospective franchisee, to ensure that the prospective franchisee does not get cheated. Such a system does not exist in India at the moment, Way2Franchise.com has been actively championing to make provision for mandatory disclosures to protect the franchisee's interests.

Franchise Fee: A one-time fee paid by the franchisee to the franchisor. The fee pays for the business concept, rights to use trademarks, management assistance and other services from the franchisor. This fee gives the franchisee the right to open and operate a business using the franchisor's business ideas and products. The franchise fee may be a percentage of sales or be at fixed price per unit. 

Franchisee: A franchisee is a business owner who purchases a franchise from a franchisor and operates a business using the name, product, business format and other items provided by the franchisor. For example, Sankalp, NIIT, Aptech sell their franchise rights to entrepreneurs, traders and businessmen and are hence termed as franchisee, post signing up. This allows the franchisee to open and operate the respective franchise.

Franchising Process: The franchisee has the rights to market the product or service using the operating methods of the franchisor. The franchisee has the obligation to pay the franchisor certain fees and royalties in exchange for these rights. The franchisor has the obligation to provide these rights and generally support the franchisee. In this sense, franchising is not a business or an industry, but a method used by businesses for the marketing and distribution of their products or services. Both franchisor and franchisee have a strong vested interest in the success of the brand and keeping their customers happy. For example: Animaster, an animation training academy, a franchisor gives a right/grant to a any person, a franchisee, to sell, market its animation training programs for a fee. This agreement between the two parties is a franchise.

Franchising Association of India: A national trade body that is committed to the cause of protecting the interests of the franchising community. Most ethical franchisors would be a member of the Franchising Association of India

Franchisor: A franchisor is a company that owns a product, service, trademark or business format and provides this to a business owner in return for a fee and possibly other considerations. A franchisor often establishes the conditions under which a business owner operates but does not control the business or have financial ownership. McDonald's is an example of a franchisor.

Intellectual Property: Intellectual Property forms an important part of the franchise system. IP comprises of a variety of intellectual property covering know how of the operational side of the franchisors business, any IT involved within the business, the accounts and admin side of the business and the use of any trademarks and trade names belonging to the Franchisors business. The franchisor retains ownership of the intellectual property always and as the network of franchises grows, the value of the intellectual property and brand grows accordingly with it. Any new ideas, innovation, new products introduction from the franchisee is also the property of the franchisor. 

Operations Manual: A written document which clearly explains the franchisor’s standards of operation, and identifies the operational tasks required to establish and operate the franchise business. The operations manual supports and promotes the use of consistent and uniform day-to-day procedures at each franchise unit within the network franchise unit in order to maintain the quality of service and products in every franchise outlet.

Potential Franchisees: Individuals, Traders, Entrepreneurs, Businessmen and virtually anybody who is on the lookup of a franchise opportunity are termed as potential franchisees. 

Product and trade name franchising generally is associated with industries such as automotive, petroleum and soft drink. This type of franchising does not include royalty fees. The franchiser provides trademarks and logos, national advertising campaigns, but most importantly, product. Essar Oil, Reliance Fuel all followed the franchising model once a upon time in India. Coco Cola, Bisleri, Asian Paints are also examples of product and trade name franchising. 

Royalty: This is the fee paid to the Franchisor for continuing use of the trademark and in exchange for the franchisor’s ongoing support services. This is usually a percentage of the franchised outlet’s sales and is typically paid on a monthly basis. Royalty in India is quite high in comparison to global averages. The royalty can be fixed or it can be a percentage is sales. 

Sales and Marketing Manual: This complements the operations manual, the sales and marketing manual establishes and states the policies governing the Franchisor's Sales and Marketing standards and practices. It also mentions where the franchisor has advertised in the past and what it intends to do in the future, the result generated, what marketing mediums work best for them to get closer to their customer base. It also mentions about any CRM software that they utilise to develop constant contact with their consumers. It may also include a list of ready-to-use templates of print ads, flash banner ads (online), email marketing any other mediums. 

Startup Franchisor: A franchisor with 1 to 10 franchise units is a startup franchisor. Risk associated with a startup need to be factored in, before you take up such a franchise. At this stage, the franchisor is learning a lot from the franchisee and hence, there is scope for negotiation with regards to the promotion activities, exclusive territories, franchise fee, royalties and / or Right of First Refusal from the franchisee's end. 

Territories: 

Exclusive / Protected Territories: This clause helps understand whether as a franchisee you will compete with another franchisee. There will always be some competition amongst franchisees, especially in urban locations. This term could be a cause of conflict, as both the franchisor and the franchisee want to make the maximum revenue possible. Franchisors need to divide their territories so that a franchisee has enough scope and opportunity to succeed without stepping beyond their boundaries. By having smaller territories, however a franchisee must not feel that the territory is too small to achieve profitability. Hence, to achieve a balance between these two conflicting perspectives, the franchisor needs to consider its current level of brand awareness, success (sales and profits), customer service levels and systemwide stability and growth. 

Trademark: a registered distinctive name, symbol, motto, or design that legally identifies a company or its products and services, and sometimes prevents others from using identical or similar marks. Part of a franchise's value is the right to use a recognized trademark.

Training Manual: The Training Manual are of two kinds, the Franchisee Training Manual, the manual being used for the training of their franchisees and the Employee Training Manual, this manual is used for training of the franchisee's and the employees of the franchisee's to help them understand and learn more about the brand, the customer group, marketing techniques and so on.  

There will be more terms added to this list, this is just a list to begin with.