Franchising 101

How does it work?

Franchising has been around for a while – most likely because it’s a system that’s been successful. It works when an individual or group (the franchisee) establishes a relationship with a business (the franchisor) to help grow that business and distribute its product. The franchisee pays a franchise fee to use the franchisor’s business model and leverage its existing brand name, while agreeing to follow the operational terms of a contract, also known as a franchise agreement. With the support of an existing business model and a recognized brand name, the franchisee typically gets a quicker return on his or her investment.

Currently, there are over 3,000 franchise systems in the United States, representing a range of industries. These franchise systems represent 3.2% of all businesses and approximately 35% of all retail and service revenue in the country.

How much do Franchisees make?

We get that question a lot, but it’s difficult to answer since there are so many variables affecting a financial bottom line. The good news is, your earning potential can be as big as you want to make it. Aside from a stellar work ethic, here are a few factors that can determine your financial success.

  • The kind of franchise you choose is probably one of the biggest variables that impacts earnings. Make sure you’re looking at a business that offers services and products that are in demand. You won't make money if the business is in a sector that's oversaturated or about to implode.
  • The location of a franchise also determines your earnings. It’s important to choose a franchise located in a community that will want what your business is offering. Remember, traffic drives sales and sales keep a franchise healthy and growing.
  • Your ability to build strong customer loyalty contributes to the success of a franchise. Treat your customers like family – and they’ll keep coming back.

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Why convenience stores?

In our 24-hour world, today’s consumers are busier than ever and want more from one location, whenever they want it. The U.S. convenience store industry is feeding this 24/7 consumer demand, taking in approximately $680 billion in sales every year. With an expanded product selection, round-the-clock operations and numerous locations, convenience store franchises are exactly what the masses are craving.

Franchises that focus on selling just one type of product or service (fast-food franchises, for example) may have a limited customer base. On the other hand, owning a franchise that offers multiple products allows you to meet a variety of customer wants and needs, which can enhance your business. Many convenience stores offer everything from gas, lottery tickets and household supplies, to coffee, snacks and beer. You can make everyone happy!

What's the best way to research a franchise?

Definitely do your homework. And if possible, talk to the men and women currently franchising with a brand you may be interested in. The more information you can gather, the better decision you can make. Here are a few helpful resources to jump-start your research. There’s so much more out there – just keep digging. And good luck!

How to speak the language

Brand:
The mark, name, logo and identity of a company or business, and a franchise system’s most valuable asset.
Broker:
An outside salesperson. For a fee, a broker will sell a franchise for the franchisor.
Business Acumen Evaluation (BAE):
Franchise qualification amendment that measures basic business acumen.
Business Conversion Program (BCP):
Franchising model where the Franchisee owns the land, building, and some equipment. The 7‑Eleven charge is lower for a Business Conversion store than for a Traditional location.
Business Leader Inventory (BLI):
Franchise qualification assessment that measures innate leadership competencies.
College of Operations Leadership (C.O.O.L.) Training:
Current Franchisee training program that is self-paced and could last up to 8 weeks.
Corporate (Corp):
Store listed in the Store’s Available List as a Corporately operated site.
Distributorships:
The right granted by a manufacturer or wholesaler to a business to sell its products.
Franchise Disclosure Document (FDD):
Provides information about the franchisor and franchise agreement, plus a complete description of initial investment costs. The FDD is typically shared after an initial application is completed.
Field Consultant:
7‑Eleven employee whose primary responsibility is to consult with franchise owners regarding their business – growing sales and profits and building an infrastructure to support it.
Franchisee:
The person that is given the right from a franchisor to do business under its brand name.
Franchise agreement:
The written contract between the franchisor and the franchisee.
Franchisor:
The business that grants the franchisee the right to do business under the franchisor's brand.
Franchise Sales Recruiter (FSR):
The person who works directly with franchisees and their store operations during the start-up period.
The Federal Trade Commission (FTC):
The U.S. government agency that regulates franchising.
Goodwill store:
A franchise store available to purchase from a current franchise owner.
Gross amount:
The term refers to the total amount made as a result of some activity. It can refer to things such as total profit or total sales.
Initial Franchise fee:
This fee is the initial fee paid by the franchisee for the right to use a business’ brand name and business model, receive funding and other potential services provided by the franchisor. It is typically paid after a franchise agreement is signed.
Initial investment:
This is the initial cost of getting into business that includes the franchise fee, inventory down payment, cash register fund and costs for supplies, licensing, permits and bonds.
Multi-unit franchise:
Franchising multiple locations within a business at one time.
Net amount:
The term refers to the amount left over after all deductions are made. Once the net value is attained, nothing else is subtracted.
New Store Open (NSO):
Store listed in the Store’s Available List that has been open or operating for less than 12 months.
Royalty fee:
A continuing fee paid by the franchisee for the use of a brand and business model.
Shared profit split:
A franchise business model that splits gross profits between the franchisor and the franchisee.
Single-store franchise:
The traditional franchise model involving only one location.
Store Support Center:
Corporate headquarters in Irving TX location where all functions supporting a franchise operation are housed – e.g. Accounting, payroll, merchandising etc.
Turnkey:
A franchise that is sold to a franchisee fully equipped and ready for operation.
Vendor:
A supplier of products or services.
Under Construction (UC):
Store listed on the Store’s Available List as currently being under construction. This is usually a 7‑Eleven site for a Traditional franchising opportunity.
Zero Franchise Fee (ZFF):
Designation for selected Corporate-own stores listed on the Store’s Available List that require no initial Franchise Fee.

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