Franchising is a broad term that describes a relationship between two or more parties. In general, the purpose of the relationship is to distribute goods and/or services. The two primary types of franchise systems in the United States are product or trade name franchising and business-format franchising. Product or trade name franchising is franchising in its most limited form: a manufacturer grants another party a license to sell goods produced by the manufacturer. Examples of this form of franchising include sales of cars through dealerships, gasoline through service stations, and soft drinks through local bottlers.
With business-format franchising, a business owner (the franchisor) allows someone to market products or services using his business name and trademark and prescribed business format (thus the name business-format franchising). In return, the individual, or franchisee, pays a fee and usually an ongoing royalty (in the form of a percentage of sales). Moreover, the franchisee pays all the costs of going into business.
An additional type of franchising is called conversion franchising. This is an adaptation of business-format franchising designed to bring formerly independent business people the collective power of a national name and national advertising. It consists of converting existing independent businesses into franchised outlets. A well-known and very successful example of a conversion franchise is Century 21, an affiliation of previously established real estate agents, that has become an industry leader through this type of franchising.
Here are samples of the various types of franchises:
Product or tradename--Ford dealerships, Shell stations, Coca-Cola bottlers
