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Franchise terminology for franchising your business - what does franchising mean



Defining A Franchise

Franchising is a method of marketing and distribution. It works by cloning a successful business. Basically, franchising is an arrangement whereby one party (the franchisor) grants another party (the franchisee) the right to run a business using the trademarks and business system (format) developed by the franchisor. For this right to copy the successful business, the franchisee pays a front-end franchise fee, which can range from a low of about $10,000 to a high of about $100,000, with most being under $50,000. The franchisee also pays a franchise royalty, which is a percentage of sales ranging from about 3% to usually not more than 8% of the franchisee's revenues. The franchisor provides training and ongoing support, and the franchisee is required to adhere to the business format licensed by franchisor.

History of Franchising

Historians usually date the beginnings of franchising to the I.M. Singer Sewing Machine Company, which began selling the rights to market its sewing machines in the 1850's. Some historians, however, think that Benjamin Franklin actually used a kind of franchise system to market his publications throughout the 13 colonies in the 18th century. Beginning in the late 1800's and into the early 1900's, automobile companies including General Motors began franchising their dealerships. By the 1930's this trend included other automobile companies, soft drink bottling and gasoline stations. By 1950, only about 100 companies were franchising, but the phenomenon was poised for explosive growth. In that decade, McDonald's, Holiday Inn, Howard Johnson's Restaurants and Motor Lodges began franchising and became household words. And the trend gathered more momentum when franchising companies began to go public in the 1960's.

Current & Projected Scope of the Franchising Industry

From about 100 franchising companies in 1950 to approximately 2,500 franchising companies today --in the U.S. alone-- franchising has continued to grow, with more than 700,000 franchised business units. A report from Price Waterhouse Coopers found that franchised businesses generate total economic output of more than $1.5 trillion, which is more than 10% of the U.S. private sector economy. Approximately 1/3 of all retail sales in the U.S. are generated by franchised outlets. And the future is bright with promise: the U.S. Department of Commerce predicts that by 2010 one out of every two businesses will operate under some form of franchise system! Already, over 300 types of businesses are franchising, and a new franchise outlet opens every 5 minutes of each working day.

If you are ready to consider franchising your business review Why Franchise and Is Franchising For You . You're welcome to fill out our Getting Started franchise questionnaire form while visiting our site. We provide no obligation and no risk franchise consulting.





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