Definition

Business format franchise

Business format franchise is a type of franchise that is by far the most popular approach to franchising and is more commonly used by entrepreneurs and entrepreneurial ventures in which the franchisor provides a formula for doing business to the franchisee along with training, advertising, and other forms of assistance. Fast-food restaurants, convenience stores, fitness centers, and tax preparation services are well-known examples of business format franchisees.

While a business format franchise provides a franchisee a formula for conducting business, it can also be very rigid and demanding. For example, fast-food restaurants such as McDonald’s and Burger King teach their franchisees every detail of how to run their restaurants, from how many seconds to cook French fries to the exact words their employees should use when they greet customers (such as “will this be dining in or carry out?). Business format franchisors obtain the majority of their revenues from their franchisees in the form of royalties and franchise fees.

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