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Franchising 101: How Does a Franchise Work?

Franchising 101: How Does a Franchise Work?

If you're interested in starting a franchise, learn about how the franchise model works.

The allure of owning a business has a powerful impact on entrepreneurs. But starting a company from scratch can be perilous. New businesses face a variety of challenges at the beginning like establishing brand awareness, developing operational systems and getting new products and services ready to go to market. According to the Small Business Association (SBA), roughly half of new businesses don’t survive for more than five years.

But starting a new company from scratch isn’t the only way to satisfy entrepreneurs’ appetites for business ownership. Franchising offers many of the same benefits as owning an independent business but with the added advantage of having the support of a well-established brand. If this sounds intriguing to you, keep reading to find out how franchising works and what you need to know before opening a franchise business.

How does a franchise work?

Let’s start by explaining how franchise systems work. When it comes to starting a new franchise location, there are two main parties:

  • Franchise owners (i.e., franchisees) – entrepreneurs like you interested in owning a franchise location
  • Corporate brands (i.e., franchisor) – a company that allows entrepreneurs to own and operate one or more of the brand’s locations

In franchising, a franchise owner partners with a corporate brand to open a business under the brand’s umbrella. The franchisee owns and operates that location using the franchisor’s brand name, logo, products, services and other assets.

For more background on how franchising works, check out this list of common franchise terms.

How to buy a franchise

Before investing in a franchise location, franchisees typically have to go through an application process and secure funding. The cost of opening a franchise business varies quite a bit between brands, as does the amount of money franchisees need to put up themselves. If you choose to get into franchising, make sure to work with the franchisor’s development team to determine costs and financing options.

After the brand approves the franchise owner, the two parties work together to get the location up and running. At the beginning of the partnership, the franchisee pays an initial fee to the franchisor to help cover the startup costs. In exchange, the corporate brand helps the franchisee find a location, negotiate a lease, learn how to operate the business and get the unit up and running.

The franchisee/franchisor relationship

With franchising, individual locations’ success is good for the brand, and vice versa. So, as the relationship continues, the franchisor continues to provide a variety of support to help franchisees run and grow their business. In return, franchisees pay the franchisor a percentage of their monthly sales. These royalty payments ensure that the corporate brand can continue providing support like product development, marketing and ongoing training.

Successful franchisee-franchisor partnerships require a symbiotic relationship between owner and brand. Franchise owners get the benefits of running their own business while also enjoying the support of an established brand. For their part, franchisors get to expand their footprint and grow their profits without having to assume all the costs of new locations.

And the benefits don’t stop there. Franchising is also beneficial for the customers who get the same product selection and quality they expect from a major national brand, but with the customized service and personal touch of a small business.

How to start my own franchise location?

Franchising sounds simple, right? Well, for the most part, it is, but franchising is also a flexible business model. This flexibility makes it slightly tougher to define franchising, but it also means franchise owners have a lot more freedom in how they run their business. To help explain this point, let’s look at the variety of ownership models available within most franchise systems.

Single-unit franchise ownership

The single-unit model is the most common type of franchise agreement, and the easiest to understand. Single-unit franchise ownership is precisely what it sounds like – a franchisee owns and operates one franchise location. Many franchisees start as single-unit owners and eventually invest in additional locations as they learn the business and become more comfortable with the brand’s operating model.

Multi-unit franchise ownership

When single-unit franchise owners start seeing success from their original investment, they often move on to multi-unit franchise ownership. Again, this franchising model is exactly what it sounds like – a franchisee owns and operates multiple locations in a single franchise system.

Master or regional franchise ownership

In this model, franchise owners take on some of the responsibilities of the corporate brand by franchising out locations within their designated territory to other franchisees. Regional franchisees receive fees and royalties from their “sub-franchise owners” while performing support activities like training customarily carried out by the corporate brand.

Opening a franchise business

If you’re like most entrepreneurs, odds are you like to do things your way. By offering multiple ownership models, franchise systems provide entrepreneurs like you the flexibility you crave and the potential to grow your business far beyond a single location. 

2023 Entrepreneur's Franchise 500 Top Rated for Veterans badge

We Proudly Support Our Veterans

Participating partners with the VetFran program, The UPS Store offers qualifying veterans $15,000 off their franchise fee to start their new business. To learn more, contact The UPS Store Franchise Development Team.

Entrepreneur's Franchise 500 Ranked #4 in 2023 badge

Ranked for over 30 Consecutive Years

The UPS Store has been ranked #1 in the postal and business services category for over 30 years and remains in the top 5 overall for the seventh consecutive year according to the Franchise 500 list.

Kristin Howard

Franchisee, Michigan

The reason my husband and I decided to go into franchising and specifically with The UPS Store, is the different opportunities we're given with the business. The UPS Store has name recognition as well as opportunities to expand.

Debbie Adams

Franchisee, Kentucky

What I enjoy most about being a The UPS Store owner is working with my customers. We are the solution specialists for our customers.

Jim George

Franchisee, Illinios

My favorite part about The UPS Store network is the camaraderie with other franchisees. Everybody loves to help everybody else. You’re really part of a family.

Greg Murray

Franchisee, Florida

The interesting thing about The UPS Store is that when a customer walks through the door there's an extremely high probability that they're coming there to do something that is important to them. So at the end of the day, what we do for customers is very important and they are trusting that we are going to do it well.

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Mariana Huberman

Franchisee, Washington, D.C.

One of the things that I love about The UPS Store franchise system is that you're not ever in this by yourself. The franchisees of The UPS Store network are great.

Heidi Morris

Franchisee, Colorado

The thing I enjoy most about being a The UPS Store franchisee is I get to get up, go to work and know that I'm helping other business owners succeed in what they're doing.

Bob Brown

Franchisee, Tennessee

Owning a The UPS Store franchise has changed my life because it's finally given me the opportunity to engage my customers and my staff and be able to take real pride in what I do. As a franchisee, we get faced with solving peoples' problems every day and we do everything we possibly can to try to help.

Marie Jensen

Franchisee, Oregon

My favorite thing about The UPS Store is the variety. I love the variety of customers, I love the variety of services; getting to know the customers, meeting their needs, finding out how we can help them accomplish what they need to accomplish and seeing how happy they are. That makes me ecstatic.

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Tad Mollnhauer

Franchisee, Florida

With the products and services that The UPS Store provides we can make a difference in people's lives and that is the best reason for being a The UPS Store owner.

Joy Batchelor

Franchisee, Idaho

What makes being a The UPS Store franchisee worthwhile at the end of the day is the customers. The customers treat us like we're family.

Paul Erchinger

Franchisee, Texas

One nice benefit of owning a The UPS Store franchise for me has been that it gives me the opportunity to be more involved in the community. As I make relationships with others it seems like no matter what the environment is, in one way or another business comes out of that and that's not my objective—it's been a secondary benefit to being involved in the community.

Chris Reminder

Franchisee, Ohio

There are several things that I really enjoy about being a The UPS Store franchisee. First and foremost it allows me to get to know the people in the local community and that is a lot of fun. We get to see people on a regular basis. We get to know their life stories. That's a lot of fun.

Bruce Jones

Franchisee, Kentucky

Since we have joined The UPS Store, our life has changed by just having more time to spend together as a family. We've been very fortunate with the stores that we have and we have a great staff that looks out for our best interest and we look out for theirs.

Lonnie Williams

Franchisee, Oklahoma

What makes The UPS Store so successful is it gives each individual an opportunity to grow with the network and just meet the challenges that are brought to them on a daily basis. Every day gives us a new opportunity to help another person, to help another small business, to answer a question and to solve a problem.

Jeff Graham

Franchisee, Alabama

I love my customers. I love my employees. I love every person, every face that comes into my store. I enjoy every day going into work and I can't see doing anything else for the rest of my life.

Stacie Stigar

Franchisee, Alaska

I think that this franchise is so successful because of all of the resources that are available to us as center owners—we have marketing materials, we have so many different opportunities for help from the home office, and it just really makes for a great franchise.

Don Pollard

Franchisee, New Jersey

I think the thing that makes this franchise successful is a number of things. First of all we have an outstanding system, we have a great product, a great brand, and we're able to attract dynamic people to run these centers and run the business. So I think when you put all that together it really provides for a winning combination.

Mary Ellen Nichols

Franchisee, Tennessee

The thing I love about the franchise is that you have the UPS name backing you but yet you also have the autonomy to make your own decisions to promote.

Laura Griffin

Franchisee, Florida

In the eight short months I've owned my The UPS Store it has really changed my life. I've gone from being an employee of someone else to being an employer of my associates. It's a big responsibility but it's exciting every day.

Sandy Scandrett

Franchisee, Wisconsin

Being a The UPS Store franchisee has improved every aspect of my life. It's very rewarding financially, professionally, and emotionally. I have a large number of regular customers who are really, really appreciative of everything we do.

Kristie Robison

Franchisee, Alabama

I would say owning a The UPS Store location has changed my life to where I have more time and flexibility. In owning your own business you get your store up and running and you get employees that you can trust that are going to help keep your store running. This allows me to attend my two boys' ball games and also travel and do things with them so it has really changed my life for the better.