Glossary of Franchise Terms and Definitions

The ABCs of Franchising: Essential Lingo, Jargon, Slang and Buzzwords Used in Franchising

Franchising is one of the most exciting business models in the U.S. today. Derived from the French verb franchir, meaning “to free,” countless entrepreneurs have achieved financial freedom through franchising — and the numbers don’t lie. According to the International Franchise Association’s 2024 Franchising Economic Outlook report, franchising grew by 2.2% in 2023, and is forecast to grow 1.9% in 2024. 

Whether you are just starting out in the world of franchising or have been in it for years, you’ll inevitably discover that franchising has a language of its own. 

Below is a comprehensive list of common franchising terms and definitions, plus fun buzzwords, slang and jargon that everyone in franchising should know. 

Common Franchise Terms and Definitions

Average Unit Volume (AUV)

Average Unit Volume (AUV) in franchising refers to the average sales or revenue of a single franchise unit over a specific period, typically on an annual basis. It serves as a key metric to assess the financial performance of individual units and is calculated by dividing the total system-wide sales by the total number of units. A higher AUV is generally considered positive, indicating profitable and successful franchise units. It is an important factor for prospective franchisees when evaluating investment opportunities.

Area Developer

An area developer enters a contractual agreement with a franchisor to develop multiple locations in a specific region, giving the developer exclusive rights to the franchise in that market.

Brand Equity

Brand equity is the value a company gains from its name recognition when compared to a generic equivalent.

Brand Standards

Brand standards are a set of rules that protect the integrity of a franchise brand.

Business Format Franchise 

A business format franchise includes a product, service and trademark, along with the complete method to conduct the business (marketing plan and operations manuals.) Examples include Subway, McDonald’s, KFC, and more. 

Build-Out

A build-out refers to setting up a franchise location, including construction, design, and adherence to the franchisor’s standards for a consistent brand image. It involves creating a uniform and recognizable presence across all franchise units, encompassing both physical space and operational aspects.

Complementary Business

A complementary business offers products and services that are related to your business and that may be of use to your customers. Great examples can be found in the home services industry.

Conversion Franchise

A conversion franchise is a model where an existing independent business adopts a franchisor’s brand and business system. Well-known brands that use this model include Century 21 and Ace Hardware. 

Development Agreement

A development agreement lays out the terms and schedule of development for a multi-unit franchisee’s locations.

Development Schedule

A development schedule outlines the opening dates for all locations found within the development agreement or franchise agreement.

Disclosure Statement

The disclosure document provides information about the franchisor and franchise system.   

Discovery Day

Discovery Day is an important part of the due diligence process when prospects visit a franchisor’s corporate headquarters and meet with the brand’s executive team. 

Exit Strategy

An exit strategy allows a franchise owner to sell their existing business to pursue other opportunities or pass it down to a family member.

E-2 Visa

An E-2 Visa is a non-permanent visa that allows immigrants to own and operate a business in the U.S. 

Exclusive Territory

An exclusive territory is a designated area where the franchisee has exclusive rights to operate, ensuring no competing locations are able to be established. 

Executive Model 

Executive model franchises are typically multi-unit operations, and the owner must hire and lead a team to keep things running. These entrepreneurs also must have a head for strategy and an understanding of basic business finance.

Franchise

A franchise is a license that describes the relationship between the franchisor and franchisee.   

Franchise Agreement

A franchise agreement is the legal contract between the franchisor and franchisee detailing each party’s responsibilities.   

Franchise Advisory Council (FAC)

A Franchise Advisory Council is a representative body comprised of franchisees elected or appointed to collaborate with the franchisor on various aspects of the business. The council serves as a channel of communication between franchisees and the franchisor, providing a forum for discussion, feedback, and decision-making.

Franchise Attorney

A franchise attorney is a legal expert who specializes in franchising. Some franchise attorneys work exclusively with franchisees, others work only with franchisors. Many represent both parties. The responsibilities of a franchise attorney include designing franchise programs, structuring franchise agreements, forming distribution agreements, negotiating contracts, managing compliance and resolving disputes.

Franchise Benchmarking Survey

A franchise benchmarking survey is a tool used to assess and compare the performance of different franchises within an industry. It gathers data on various metrics such as financial performance, operational efficiency, and customer satisfaction to establish benchmarks. This helps stakeholders identify best practices, areas for improvement, and opportunities to enhance overall franchise system performance.

Franchise Broker

Glossary of Franchise Terms and Definitions

A franchise broker connects franchisors with qualified franchise seekers. It’s important to note that the term “franchise broker” is interchangeable with “franchise consultant.” These professionals, while essentially the same, have different roles. When they are wearing the “franchise broker” hat, they collaborate with franchisors and introduce them to qualified franchise seekers. When they are wearing the “franchise consultant” hat, they work with candidates to find an ideal franchise.

Franchise Broker Network

A franchise broker network connects franchisors and consultants. These organizations offer training and educational tools and host networking events to foster collaboration.  

Franchise Broker Organization

Similar to a franchise broker network, a franchise broker organization connects franchise professionals, provides education and hosts events. The main difference is that they employ a membership-based structure, collecting membership fees from franchise brokers and franchisors rather than earning revenue directly from the franchise buyer. Thus, there is a no-pressure environment since they don’t earn any more or less if you buy a franchise. An example of a franchise broker organization with a membership-based structure is IFPG.

Franchise Confirmation Day 

Franchise Confirmation Day is another name for Discovery Day or Meet the Team Day. This event —which can be one day or several — involves candidates meeting with a franchisor (often at the corporate headquarters) and getting a behind-the-scenes look at the brand before making an investment decision. 

Franchise Consultant

A franchise consultant assists aspiring business owners through the process of investing in a franchise.  

Franchise Development

Franchise development is the strategic process of turning an existing business into a franchise system and growing it responsibly 

Franchise Development Firm

A franchise development firm is a specialized company that assists franchisors in growing and expanding their franchise systems. These firms offer a range of services to help franchisors attract and recruit new franchisees, ultimately expanding the reach and presence of the franchise brand.

Franchise Disclosure Document (FDD)

An FDD is a 100–200-page legal document that details important information about a franchise. One of the most discussed aspects of this document include item 7 (the initial investment range) and item 19, which provides information about how much the franchisee can expect to make in a year. 

Franchise Expo

Glossary of Franchise Terms and Definitions

A franchise expo is an event that allows brands to showcase their offerings and connect with prospects and other interested parties. Attendees have opportunities to meet face-to-face with guest speakers, receive free samples, network and more. 

Franchise Family

Franchise family is an endearing term used by franchise professionals that describes the collaborative culture within franchising.

Franchise Field Support  

Franchise field support is an important part of a franchisor’s ongoing support. A representative is assigned to a particular region and is responsible for guiding and supporting the franchisees in that area. 

Franchise Intranet 

Franchise intranet is a term for the private website that can only be accessed by franchise owners. 

Franchise Legal Compliance

Franchise legal compliance involves franchisors and franchisees adhering to laws and regulations in areas including contract law, employment law, intellectual property rights, consumer protection, and specific franchise legislation. 

Franchise Operations Manual

A franchise operations manual is a comprehensive guide provided by the franchisor to the franchisee, detailing the operational procedures and standards of the franchise.

Franchise Resale

A franchise resale occurs when a franchise owner sells their business to someone else, simplifying the entry into franchising. Studies show that franchise businesses get more money at resale than non-franchise businesses. 

Franchise Royalty Structure

A franchise royalty structure is the financial arrangement between a franchisor and a franchisee, involving a royalty fee—a percentage of the franchisee’s gross sales paid to the franchisor. Additionally, franchisees may contribute to an advertising fund. This structure, outlined in the franchise agreement, supports ongoing franchisor support and brand consistency.

Franchise Renewal 

A franchise renewal is the process of extending the agreement between a franchisor and a franchisee. It allows the franchisee to continue operating under the franchisor’s brand and business model after the initial term expires. The renewal involves negotiations on terms such as fees and royalties outlined in the original franchise agreement.

Franchise Sales Organization (FSO)

A franchise sales organization (FSO) is a company that is hired by franchisors to help them sell franchises.  

Franchise Score

A franchise score refers to the different ways of measuring the performance and credit risk of a franchise brand. An example is the FUND Score, which evaluates 13 credit risk and performance categories.

Franchise Support

A comprehensive franchise support system assists franchisees through the life of their business. This includes a listening ear, technical advice, business building tools, marketing collateral, financial guidance, new innovations and ideas, and more.

Franchisee Turnover

Franchisee turnover is the rate at which franchisees leave a franchise system, either by selling their business, closing operations, or terminating their agreement. High turnover can signal challenges within the system. 

Franchise Validation

Glossary of Franchise Terms and Definitions

Franchise validation is the process where potential franchisees seek feedback from current or former franchisees to gather insights into the franchisor’s support, profitability, training, and overall franchise experience. It helps individuals make informed decisions about the viability of a franchise opportunity.

Franchisee

A franchisee owns the rights to do business under a franchisor’s trademark or trade name in a designated area.   

Franchising 

Franchising is a method of business expansion characterized by a trademark license, payment of fees, and significant assistance.   

Franchisor

A franchisor grants the right to do business under their trademark or trade name. Franchisors have several responsibilities, including creating an FDD and providing support and training. 

In-House Financing

In-house financing options are offered by franchisors themselves and can cover the fee or other expenses, such as inventory and equipment.

International Franchise Association (IFA)   

The International Franchise Association (IFA) is the world’s largest membership organization for franchisors, franchisees and franchise suppliers. IFA provides industry-leading events, advocacy, education and growth opportunities to the franchise community.

Initial Training 

Prior to opening a franchise, franchisees receive initial training from the franchisor to learn operational procedures, brand standards and other necessary skills to run the business.

Investment Franchise Model

The investment franchise model allows capital investors to provide the necessary financial resources to set up or buy a franchise unit with the goal of making a return. These franchisees are typically corporate investors with a proven track record within the relevant industry.

Marketing Fee

A marketing fee is paid by the franchisee to the franchisor or a marketing fund for advertising efforts.

Master Franchise

A master franchise is a type of franchise agreement where the master franchisee has the rights to sub-franchise in a specified territory.

Master Lease

A master lease in real estate is an agreement where an entrepreneur leases an income-producing property as a single tenant and then subleases it to occupant tenants to get rental income.

Meet the Team Day

Meet the Team Day is another name for Discovery Day, when franchisee candidates visit corporate headquarters and interact with franchisors. 

Micro Franchising 

Micro franchising is a business model that applies elements and concepts of traditional franchising to small businesses.

Multi-Unit Franchise

A multi-unit franchise is an arrangement where the franchisee owns and operates more than one unit of the franchise.

Multi-Brand Franchise

A multi-brand franchisee operates multiple franchises from different brands, diversifying their business portfolio. This approach involves managing distinct franchises, each with its own guidelines and standards, requiring effective organizational skills and industry understanding.

Non-Compete Agreement

A non-compete agreement is a clause in the franchise agreement that restricts the franchisee from engaging in a similar business or trade in competition against the franchisor during and after the term of the franchise.

Owner-Operator

An owner-operator is an entrepreneur who runs the day-to-day operations of a small business.

Ongoing Support 

Ongoing support is the continuous assistance provided by the franchisor, which may include marketing, training, product development, and operational guidance.

Portfolio Company

Also referred to an umbrella franchisor, a portfolio company owns multiple brands and is responsible for franchising them. Franchise owners benefit from increased buying power and opportunities to invest in complementary businesses.

Responsible Franchising

Responsible franchising involves ethical, transparent practices by franchisors and franchisees. It includes fair dealings, clear communication, comprehensive support, compliance with laws, and a focus on mutual success. This approach fosters trust and sustainability within the franchise system.

Renewal Rights 

Renewal rights are terms under which a franchisee can renew their franchise agreement when it expires. 

Royalty

A royalty is the regular payment made by the franchisee to the franchisor, typically based on a percentage of the franchisee’s gross sales.   

Semi-Absentee Ownership

Semi-absentee ownership allows franchise owners to hire a manager to help with daily operations, freeing the owner to keep their day job or pursue other opportunities such as multi-unit franchise ownership.  

Social Franchising

Social franchising is the application of commercial franchising concepts to achieve socially beneficial ends, rather than purely for profit.

Territory 

A territory is the specific geographic area in which the franchisee is allowed to operate.

Territory Check

In franchising, a territory check involves verifying and ensuring that a franchise is available within a designated geographic area.  

Third-Party Financing

When a franchisor doesn’t offer financing options, franchisees can go to a third-party financing agent, such as a bank.  

Trademark

A trademark is a legally registered symbol, logo, or name representing the franchisor’s brand. It grants franchisees the right to operate under this recognizable brand, ensuring consistency and customer trust across all locations. Protection and proper usage of the trademark are outlined in franchise agreements.

Turnkey Operation

A turnkey franchise is a business model where the franchisor provides the franchisee with a ready-to-operate package, including a proven system, training, equipment, and support, simplifying the startup process for the franchisee.

Zee 

Zee is a shortened or slang term for franchisee. 

Zor 

Zor is a colloquial term used to refer to a franchisor.

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