Franchise industry is one of the most popular and growing industry in the business market. India holds a very high position for potential franchise market. Young and intelligent minds are exploring the franchise business as it has a readymade base and customers.
While scrolling the details to get insights on franchise business, you might not have clear understanding on franchise terminology or jargons. Here we have pointed the most important franchising terms that you must know before buying a franchise.
They are as follows:

1) Franchisor:
Franchisor, in franchise industry owns the right and trademark of a brand/company. It allows a third party(franchisee) to use the trademark and right for running the business after the clauses being made clear by the legal experts and with mutual agreement of both parties. The ultimate owner of everything including name, brand, etc, is the franchisor.

2) Franchisee:
A franchisee is the one that is purchasing the right to use a business's trademarks, associated brands, and other proprietary knowledge in order to open a branch. In franchise business, the franchise invests and use the brand and any intellectual capital inherent in the brand as long as they adhere to the business rules and payment structure the franchisor requires to be brand compliant.

3) Franchise fees:
The franchise fee or the "initial franchise fee" is the amount paid by a franchisee to the franchisor for getting associated in the franchise business. It is the initial payment that the franchise pays to the brand or franchisor when they agree for the franchise operation. The franchise fee is a one-time upfront fee, that is paid while signing the franchise agreement. It is for the right to use the brand name. It basically acts as compensation to the franchisor that the franchise takes for the initial training and support for new franchisees. 

4) Royalty fees:
 Royalty fee is the amount paid by the franchisee to the franchisor for the use of the franchise brand, name, business process, etc in the franchise business.  Royalties are basically a percentage of the franchisee's revenues. Several factors affect the royalty rate including exclusivity of rights, risks involved, market demand, technologies involved, and the level of innovation the product or service provides the franchisee.

5) Territories:
Many franchisors grant their franchisee an exclusive area or territory, where no other franchises belonging to the same underlying business can set up shop. These territories are commonly known as protected territories, or areas of protection.
              
  As the name suggests, the purpose of a protected territory is typically to prevent internal competition and to protect franchisee sales from being cannibalized by other locations utilizing the same brand in close proximity. Protected areas or territories may be defined by a radius in miles, postal codes, or cities. Territories are protected for a specified amount of time and agreed to in the franchise agreement.

FAQ

1) What are 5 things that may be included in a franchise agreement?

A) The 5 key things that may be included in franchise agreement are: Territory rights, Minimum performance standards, Trademark, Advertising standards, franchise payments.

2) What are the things to consider before buying a franchise?

A) The things to consider before buying a franchise are: Your budget, research your market and product, build a good business plan, demand for your product, Customer demand, Check the competition etc.

3) What are the five 5 major types of franchises?

A) The 5 major types of franchises are Job franchises, Investment franchise, Distributor franchise, business format franchise, conversion franchise.

4) What are 5 characteristics of a franchise?

A) The 5 characteristics of a franchise are: Open to follow instruction, adaptable to change, similar accountability of a franchisor, good forecast and analysis skill, Driving skill to manage the franchise.