The dictionary defines a franchise as “the right or license granted to an individual or group to market a company's goods or services in a particular territory.”
The concept is simple: a person or group (franchisee) pays for the right to market a product or service using the trademark or trade name of another business (franchisor). The agreement often includes the right to use the operating methods of the franchisor. Franchisees pay for brand name recognition, usually through a franchise fee and royalties, and the use of products or services that are already familiar to the customer. The franchisee agrees to follow the franchisor’s SOP to maintain a certain level of quality and consistency customers expect.
The franchise concept is sometimes compared to baking: The franchisee uses a proven recipe and, following the step-by-step instructions, bakes a delicious cake. They’re not baking it from scratch – they’re using grandma’s recipe that everyone already knows and loves.