A proper definition of a franchise agreement is the following.
It is a legal contract in which a well established business consents
to provide it's brand, operational model and required support to another party for
them to set up and run a similar business In exchange for a fee and
some share of the income generated.
The franchise agreement lays out the details of what duties
each of the party needs to perform in what compensation they can expect.
A typical franchise system offers value to its franchisees by
offering the following services.
Marketing and advertising.
Brand recognition.
Reservation systems.
Cross-selling within the network.
Proven mode of operations, technology, soft and hardware, training, design
plans and specifications, financing, site selection and market analysis, PR and
promotions, quality assurance programs, and purchasing benefits.
The costs and fees of franchising include initial fees, simply to enter the network,
which is typically a mix of the flat fee plus a certain amount per room.
For instance, a franchisee could pay while submitting its application
a flat fee of 40,000 Euros plus 300 Euros per room.
Other costs may be incurred such as PIP, or Property Improvement Plan costs, and
others such as signage.
In addition to the initial fees,
the franchisee needs to paying continuing fees, generally on a monthly basis.
Which includes royalty fees between 3 and
7% of room revenue, marketing fees from 1 to 5% of room revenue, and reservations
fees ranging from 1 to 10% of room revenue or fixed amount per available room.
Other fees may exist too including loyalty program fees.