Franchising is a method of distributing goods or services to consumers. The franchise system owns the right to the trademark of the business. The franchisee purchases the right to use the trademark and operating system.

Most people associate the word “franchise” with fast food restaurants. But, there are many more types of franchise businesses, including everything from advertising to automobile repair, printing services to party supplies and many more.

Franchise Types:

• Product Distribution Franchise:
  In this type of franchise, the franchisee sells products manufactured by the franchisor.
  Examples include: Coca-Cola, Goodyear and Ford Motor Company
  
• Business Format Franchise:
  In this type of franchise you are purchasing a complete system for delivering the product or service and for doing business. It is the system that produces consistency which is the basis of the franchise’s success. Examples include: McDonalds, AMMCO and Great Clips.

• Single Unit Franchise
• Multiple Units
• Master Franchise
• Area Developer

The word "franchise" comes from Old French meaning privilege or freedom. As economies evolved, so did the concept of franchising. It is believed that our current concept of franchising comes from the mid 1800s when a major German ale brewer granted certain taverns the exclusive right to sell their ale. Around the turn of the century, the face of franchising looked very much the same. This system essentially granted the right to distribute and sell a product. At this time, the trend-setting model was the franchising rights authored by oil refineries and automobile companies. In the 1860s, the Singer Sewing Machine Company was the first to use franchising in the United States. Singer developed written franchise contracts for the distribution of their sewing machines and was the first to implement the predecessors of modern franchise agreements. After WWII, millions of servicemen and women returned home, and with that - the Baby Boom began. The large work force demanded the opportunity to explore and develop more and better business opportunities, which changed the business and our economy forever. With these demands, franchising evolved into the dominant and most successful concept - business format franchising. In this type of franchising, the franchisor (example: McDonald's) not only allows the franchise to use its name and sell its products or services, but also involves the total transfer of a way of doing business. This includes marketing, operating, technical training, management techniques and expertise developed and perfected by the franchisor (sometimes referred to as a "learning curve"). The franchisor will also provide on-going training and support throughout the life of the franchise agreement.

Within the next 10 years, franchising will comprise over 50% of the retail economy and employ millions of people. This growth should be anticipated based on the simple logic of the underlying concept. Franchising offers success to aspiring, new business owners with the least amount of risk. These systems will enable hundreds of thousands of new business owners to realize the dream of successful business ownership and financial independence. Like the US and world economies, franchising is evolving. There will be even greater opportunities for wealth creation among both franchisees and franchisors as this evolution progresses. New franchises will be developed while the existing systems become more fortified and continue to grow.

There are many reasons to start a business through franchising rather than an individual start-up.

• Name recognition
• Ability to expand easily
• Greater buying power due to mass purchasing
• Start-up training
• Ongoing support of franchise company
• Low start-up costs
• Higher potential for asset appreciation

Statistics support these notions:

• It is estimated that up to 6000 franchise companies operate in the U.S.
• 75 industries use franchising to distribute goods and services to consumers.
• Nearly 50% of all retail sales come through franchising.
• One in twelve businesses are a franchise.
• Average initial investment level for nearly 8 out of 10 franchises, excluding real estate, is less than $250,000.
• Nearly 86% of all franchises opened in 60 industries during the past 5 years are still under the same ownership.
• Over 300 franchises are sold every week. Or… every 8 minutes of a typical week a new franchised business is started.
• 750,000 franchised businesses in the U.S. generate almost $1 trillion each year.
• In 2000, the median gross annual income, before taxes, of franchisees was in the $75,000 to $124,000 range, with over 30% of franchisees earning over $150,000 per year.

But nothing speaks louder than the U.S. Department of Commerce
Seven Year study of Franchise vs. Independent Start-Up Success Rate:

According to the U.S. Department of Commerce, franchise businesses are exponentially more likely to succeed than individual new start-ups, particularly if you look at the figures over a five or seven year period. According to Department of Commerce figures, after seven years 91% of new franchises are still in business, as compared to only 20% of individual new start-up businesses.