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What is the present and future market strength of franchise industry?

The franchise industry is growing at a steady rate for the last five or more years and will continue to grow in the future. In 2007, the sales amount generated by the franchise industry was close to $2 trillion dollar. Today, the industry employs about 14% of private sector employees and the payroll of the industry is $500 million. What’s more, the figures are projected to become double in the coming years!

What is Master Development?

When a franchisor sells the rights to develop an area to a franchisee for a stipulated fee within a fixed period, it is called master development or master franchise development. A master franchise may or may not open a unit of his own; his main job will be to sell and develop sub-franchisees. He gets to keep a part of the franchise fee and the royalty fee the sub franchisees pays. The area can be as big as a continent to as small as a city.

What is Area Development?

Area Development is a kind of multi-unit franchise business where the franchisee buys the rights to open more than one unit within a stipulated time-frame. Since he opens more than 1 unit, he gets a discount on the franchise fee. He may open the units himself or offer franchise business for sale to the sub franchisees. Unlike master franchisees, area developer does not get a part of the franchise fee or any other fee.

What is franchise fee?

The one-time fee a franchisee pays to the franchisor when he is starting a franchise. It can be as low as $1000 to as high as millions depending on the franchisor. The franchise fee is paid for the support and the training the franchisor will give the franchisee after joining.

What is royalty fee?

The recurring fee, which a franchisee pays to the franchisor during the time he is in the franchise system. It is for the continuous usage of the trademarked products and logos of the franchisor and the support system that he provides to the franchisee. The royalty fee generally varies between 4 to 7% of the gross or net sale. This is the main income generator for the franchisor.

What is initial investment?

The investment a franchisee has to make at the time he is starting the franchise. This includes the franchise fee, cost for real estate leasing and modification, equipment buying, getting required permits and license, paying the franchise attorney and franchise consultant (if you have appointed one). The amount will be mentioned in the UFOC and the franchisee is expected to have the money or the means of having the money before he signs the franchise agreement.

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