Common Terms in Franchising

Like any industry, franchising has its own language, so getting familiar with common terms in franchising can be helpful if you are considering becoming a new franchise business owner.

Franchising: A method of business expansion where a franchisor provides its trade name, products and services, and an entire system for operating the business. For example, Crestcom is a franchisor that provides operation manuals, training, as well as marketing and advisory support to its franchisees.

Franchise: A franchise is a license to distribute products or services. It describes the relationship between the franchisor and franchisee, including the use of trademarks, fees, support, and control.

Franchisor: A franchisor is a person or company that grants the franchisee the right to do business under their trademark or trade name.

Franchisee: A franchisee is a person or company that obtains the right from the franchisor to do business under the franchisor’s trademark or trade name.

Area Developer: An area developer is a franchisee who has purchased the rights to open multiple franchise units within a certain area and time frame.

Trademark: The marks, brand name and logo that identifies a franchisor and are licensed to the franchisee.

Franchise Disclosure Document (FDD): The Franchise Disclosure Document, or FDD, is the disclosure document that provides information about the franchisor and franchise system to the franchisee. Its purpose is to ensure that every franchisee makes an informed decision before signing a franchise agreement.

Franchise Agreement (FA): A franchise agreement is a legal, written contract that includes the rights, responsibilities, and obligations of the franchisor and franchisee.

Franchise Fee: The franchise fee is paid to the franchisor after signing the franchise agreement to secure the rights to use the franchisor’s brand, products and intellectual property. The franchise fee is usually paid upfront but can also be paid in installments according to the franchise agreement terms.

Royalty: Royalties are regular payments made by the franchisee to the franchisor, usually based on a percentage of the franchisee’s gross sales. These fees help the franchisor stay current on technology and enable the creation and marketing of new products and services.

Franchising is About Relationships

Learning some common terms in franchising can make it less intimidating to explore owning a franchise, but owning a Crestcom franchise is about more than legal terms and contracts—it’s about relationships. As a Crestcom franchise owner, you’ll be in business for yourself, but not by yourself. We take the time to get to know prospective franchisees and train them in our marketing, sales and facilitation before signing the franchise agreement. Crestcom franchisees become part of a growing and supportive network with a meaningful purpose—helping people grow into great leaders!