Franchise Alliance terminology M to Z

Management Service Fee - See "Service Fee" and "Fixed Service Fee".

Marketing Manual – According to Franchise Alliance , a manual of information often provided to guide a new franchise owner in how to promote and effectively market their products or services into the community. Traditionally, such manuals will provide bromides of forms and posters to be used, together with details of how to monitor performance of the promotions conducted.

Master Franchisee/Sub Franchisor - Franchisors sell master licences to operate their systems in other countries, regions or States. Thus, an Australian Sydney-based Franchisor may allow his business to expand into Western Australia by the appointment of a Western Australian based Master Licensee, who in turn has the rights to sell franchises in Western Australia, providing it all of the local support services. Franchise agreements in such a situations are normally between all three parties, The National Franchisor, The Master Licensee, and the Franchisee, according to the franchise consultancy firms.

Multi-Level Marketing – A form of direct selling by distributors to the public in their homes. Not a business format franchise, according to the franchise consultant body.

Multi-Unit Franchise - A Franchisee with more than one unit. Franchise Alliance states that such franchisees are usually a sign of the successful franchises which have proved their ability to be run under management, for naturally a Franchisee cannot actually operate in more than one place at one time. Very common in the U.S.A. but less common in Australia, where many Franchisors see a major component to franchise success being the actual day-to-day involvement of the franchise owner. For that reason some Australian Franchisors actually prohibit ownership of more than one unit.

Multiple Franchisors - Franchisors offering more than one franchise concept, according to the franchise consultancy.

Operations Manual – According to Franchise Alliance , manuals supplied by the Franchisor to his Franchisee as part of the franchise package to provide him with step-by-step instructions (the business system) on how to set up and operate the business to the correct specification and standard required. The manuals are copyright of the Franchisor and, as they contain the very essence of how to duplicate the business, they have to be treated with the utmost care and confidentiality.

Party Plan Selling – According to Franchise Alliance , a form of direct selling to the public through "parties" in their home. Not a business format franchise.

Pilot Unit - A unit of the franchise run by the Franchisor or under his close supervision during the "proving" time of system development, to demonstrate that the concept, system and procedures will provide a successful business and that the know-how can be transferred successfully to an inexperienced Franchisee. The pilot unit is the ultimate test bed for the Franchisor's training methods and manuals, according to the franchise consultancy.

Plant and Equipment - The plant and equipment required by the Franchisee within the franchised business to operate the business in the manner laid down by the Franchisor. Normally paid for at settlement or immediately prior to possession of premises, says the body of franchise consultants.

Product Supply – Franchise Alliance states that the Trade Practices Act prohibits the fixing of a line of supply or prices. Most Franchisors with a business which supplies products or goods do, however, wish for a standard range of products to be supplied by their Franchisees. The Franchise Agreement may provide for the supply of products through a nominated supplier, and set guidelines for the acceptable standards of products to be used in the Franchisee's business. Should the suppliers nominated not be able to supply the nominated product, a Franchisee would normally have the ability to seek other suppliers, provided that the goods meet the standards set.

"Old fashioned" franchise thinking was that a Franchisor could obtain an income from product supply. As that is more transparent and could provide an opportunity for abuse by interfering with end prices and their structure, most Franchisors now adopt only a service fee or royalty income.

Pyramid Selling – According to the franchise consultancy, an arrangement, often associated incorrectly with franchising, which involves the selling of territorial rights through a pyramid, or tiered sub-licence structure. The promoters rely for their income on the sale of the tiered territories, rather than the sale of product or the success of the territory owner to provide service fees. Such schemes are now illegal in some countries.

Renewal – According to Franchise Alliance , franchise Agreements are normally granted by the Franchisor for a specific period (see Term). That period is broken down into units of time, perhaps five years, at which point renewal of the franchise is required. If the Franchisee has been in repeated breach of the Agreement then the Franchisor may exercise any rights he may have under the Agreement not to allow such renewal, in which case the franchise will lapse. If the Franchisee has performed to the Agreement, then the right of renewal is granted, subject to any newly written Franchise Agreement being put in place. That new Agreement may be in different wording, but cannot alter substantially from the original agreement made at the outset. Royalties, service fees and advertising levies cannot be amended. A renewal fee of $1,000 or more may be applied to cover the Franchisor's costs at renewal, but again that amount is stipulated in the original Franchise Agreement.

Royalties – The franchise consultancy firm states that another term for Service Fee but, in fact a misnomer because service fees are calculated on the same basis as royalties (percentage of gross turn-over). In essence, royalties are a form of passive income which requires little or no effort from the recipient. Examples are copyright or patent royalties.

Service Fee - The Franchisor will obtain his continuing income, required to support the Franchisee, by way of a weekly or monthly fee, normally expressed as a percentage of Franchisee turnover. Otherwise known as Franchise or Management Royalty, according to Franchise Alliance .

Service Marks - Similar to trade marks, but applicable to services rather than actual products, states the franchise consultancy. The granting by the Franchisor to the Franchisee of the rights to use his service marks, trade marks and copyright material (Operations Manuals, etc.) is a basic element of a franchise package. One important obligation of the Franchisor is to prevent his marks from being used by any unauthorised person in order to protect the interests of his Franchisees, who, in their Franchise Fee, have paid for the right to use those exclusively. There are laws which protect service marks, similar to trade marks.

Sub-Franchises - Sub-franchises are franchises granted within the territory of an existing Franchisee, and are usually allowed to be granted when the original Franchisee reaches a point in business development whereby they cannot sustain any further growth from the one unit or outlet, states the body of franchise consultants. Each agreement will vary, but it is normal for a Franchisee who owns a territory to be allowed to offer the sub-franchise to another and take profit form that offering. However, it is also normal for the Franchisor to actually grant the new franchise, and to also receive an up-front franchise fee to cover training and induction of the new franchise owner.

Term - The period of time for which the franchise is granted. "Old fashioned" franchising concepts used to grant terms as short as one, three or five years. Modern thinking is to grant terms of ten, twenty or thirty years, states Franchise Alliance .

Territory - Most Franchise Agreements will provide an exclusive geographic area or territory in which the Franchisee may operate without fear of competition from within his own group. According to the franchise consultancy, this may not always be possible, especially when the business is perhaps a mobile "instant response" service.

Turn-Key Operation – The franchise consultant state that a franchise in which the franchised unit is completely fitted out, equipped and stocked for the Franchisee, ready for opening day. A term taken from the computer industry when you turn the key and the total system starts to operate. This term is often applied to retail franchised operations.

Up-Front Fee - See "Franchise Fee."