Business format franchising

From CEOpedia | Management online
Business format franchising
See also

Business Format Franchising is one of the franchising types next to the Product or Trade Name Franchising that has been developed in the 1950s[1].

It is a very common method of franchising that can be widely used in various industries. In this business relationship, the franchisor gives the franchisee permission to use the franchisor's goods and services, trademark, trade name, and foremost the prescribed business format. The franchisor provides the business know-how as well as on case to case financial, technical and legal support to the franchisee. This method enables an individual without previous experience a chance to be informed and trained on how to run a business[2].

Business Format Franchising is frequently used in quick-service restaurants, retail food, lodging and table/full-service restaurants[3]. The most known examples of business format franchising are McDonald's, Subway, Kentucky Fried Chicken, Starbucks Coffee, Motel 6.

Business Format Franchising and Product or Trade Name Franchising

Product or Trade Name Franchising occurs when the franchisee purchases the products or product line from the manufacturer or supplier (the franchisor). In this type of franchising the franchisee requires the trademark, trade name and/or product from the franchisor. In Business Format Franchising “the franchisee adopts the franchisor’s entire method of operation”[4].

Conditions for the existence of a Business Format Franchise

A Business Format Franchise happens where[5]:

  1. The franchisor has the right to license a business format. He can offer, supply, distribute goods or services or both to other parties.
  2. Franchisor gives the right to conduct business using the business format in the system or consistent with a marketing plan defined, controlled and suggested by the franchisor or one of its partners.
  3. Franchisor grants a franchisee.
  4. The operation of the company is essentially or materially related to a brand owned, licensed or used by the franchisor or one of its partners.
  5. A business functioning as a business format has been operated by the franchisor for a period of at least 12 months.
  6. The franchisee pays money to the franchisor by way of:
  • payment for services or goods and/or,
  • a starting capital and/or,
  • a training fee and/or,
  • reoccurring or frequent payment of various increments and/or,
  • reimbursement for a lien made by the Franchisor.


  1. Alon I., 1999, p.11
  2. Sidhpuria M.V., 2009, p.16
  3. Hatten T.S., 2018, p.111
  4. Hatten T.S., 2018, p.111
  5. Abell M., 2013, p.298


Author: Angelika Marzecka