If you're in the beginning stages of your franchise research, Creative Colors International (CCI) can help you understand the jargon, because franchise terminology can be confusing. Knowing common franchise terms will ensure you're not left scratching your head during important discussions.
Franchisor vs. Franchisee
Let’s start by clearing up the difference between a franchisor and a franchisee, as these roles are central to any franchise system. A franchisor is defined as the individual or company that owns the overarching brand, products, and services of the franchise. They sell the rights to open and operate a franchise under their brand name. There are more than 4,000 franchise brands covering 230 industries in the U.S. A franchisee is an entrepreneur who buys the right to implement the business model the franchisor has developed and proven over time.
Top Franchise Terms
Now that you understand the basics of franchising, let’s take a closer look at some of the franchise terminology you will need to understand as you explore franchise opportunities.
- Average unit volume (AUV): AUV refers to the average revenue that a single franchise unit generates. High AUVs can indicate a successful franchise model, but it’s also important to consider factors like location and market trends when evaluating this number.
- Discovery day: An event at the company’s headquarters where you can ask questions, see the operations in action, and sometimes even meet other franchisees. Attending gives you a firsthand glimpse of the brand and what your future might look like with the franchise. It’s typically the last step before you sign a franchise agreement.
- Franchise agreement: This legal document outlines every aspect of your relationship with the franchisor. It’s your operating manual and contract rolled into one.
- Franchise fee: The franchise fee is a one-time, upfront fee that you pay to the franchisor for the right to use their trademark, access their proprietary knowledge, and receive initial training and support.
- Franchise disclosure document (FDD): A legal document franchisors are required to share with prospective franchisees to give them a detailed overview of the brand, including the franchisor’s history, financial statements, litigation history, the initial and ongoing costs associated with operating the franchise, and the rights and responsibilities of both the franchisor and franchisee.
- Initial investment: The initial investment is the amount you need to start and operate a franchise. It includes the franchise fee, plus other startup costs like real estate, equipment, supplies, and additional funds to keep your business running until it becomes profitable.
- Item 19: Item 19 is a section of the FDD that provides financial performance representations, which may help provide insight into the earnings of existing franchise units.
- Royalty fees: A royalty fee is an ongoing payment made to the franchisor to use its brand and resources. It’s usually calculated as a percentage of your weekly or monthly gross sales.
- Territory: Territory refers to the geographical area in which you’re allowed to operate and market your franchise. Having an exclusive or protected territory means no other franchisees from the same brand can open a location within that area, reducing your local competition.
CCI Understands Franchising
Knowing the lingo will help you understand why CCI has a competitive edge in the franchise industry. We’ve helped entrepreneurs establish fulfilling businesses for more than three decades. Our mobile leather and vinyl repair franchises have unlimited earnings potential and low overhead costs.
With an initial investment ranging from $86,980 to $102,410, you’ll get the keys to a new future. We provide the training and tools you’ll need to serve both businesses and residential customers. Our leather and vinyl repair services can save customers up to 90% of replacement costs.
To get more details about partnering with CCI to open a mobile business, request franchise information to connect with someone from our corporate team.
