12 Franchising Terms You Need to Know Before Opening a Spa
Investing in a franchise and opening your own business, all things considered, are fairly similar. But if you’re new to franchising – whether as a first-time business owner or as a potential franchisee converting your existing business into a Marilyn Monroe Spas location – there might be a bit of franchise jargon that you’re unfamiliar with.
Here’s a look at a few of the most common terms that might be new to you, and what they mean.
Franchisee – A person who purchases the right to open a new branch location of a brand’s business. This person is a franchise owner, but they only own their individual location, not the parent “franchise.”
Franchisor – This is the parent franchise. Marilyn Monroe Spas is the parent franchise, while anyone who opens one of our locations would be a “franchisee.”
Franchise Fee – A fee paid up front as part of an initial investment into a franchise. This is essentially the price you pay for the right to open a new franchise location. Often, the franchisee fee will be included in the “initial investment” number, but also listed as a separate list item on an investment page so as to differentiate the two numbers. At Marilyn Monroe Spas, our franchise fee modestly ranges from $40,000 to $45,000.
Franchise Disclosure Document – Also commonly referred to as the “FDD,” this legal document is required by federal law to be given to all franchisees by franchisors at least two weeks in advance of any required contract signing. It generally consists of 23 sections, called “items,” which detail things like the history of the company, company and industry data, different contractual obligations, fees, costs, and more.
Initial Investment – This is the term used to refer to how much money you’ll need to get the company up and running. It generally includes the franchise fee, equipment costs (like, for example, salon chairs, furniture, décor, etc.), and other costs needed prior to launch, and occasionally will include a designated number of months’ operating costs to make sure funds are available as you grow your business and start bringing in revenue.
Royalty Fees – Commonly referred to as simply “royalties,” these are payments made by franchisees to the franchisor on a scheduled (weekly, monthly, yearly, etc.) basis. Royalties vary in amount, but typically are calculated as a small percentage of gross sales numbers.
Franchise Agreement – This is a written contract, usually included in the FDD, that outlines the responsibilities of both the franchisor and the franchisee. It’s basically your contract to become a franchise owner.
Terms of Agreement – This will be in your franchise agreement, and it specifically states how long you are licensed to own your franchise location, as well as details of what happens if either side violates that contract for any reason. The duration of this contract varies, but at the end of it, a good franchisee is typically offered the opportunity to re-sign, and sometimes for a percentage of the initial franchise fee.
Franchise Territory – A designated, mapped-out area that franchisors offer franchisees the ability to “control.” Essentially, it just maps out boundaries where another franchisee in the same company cannot open another store so as to decrease competition and avoid competing revenues with one another.
Conversion – A franchise location that is being or has been “converted” into the franchisor’s brand from a previously-existing location. For example, a current salon owner has the opportunity to convert their location into a Marilyn Monroe Spas location.
Franchise Expansion – When a franchise is looking to open new locations, it’s generally referred to as “expansion.” It also generally refers to domestic expansion, but can also reference international expansion.
Master Franchise – When a company decides to sell the rights to open several locations in a given region to a person or investment group, this is called master franchising. The person or group is referred to as the master franchisee, and they serve as the franchisor for their own franchisees.
Master franchising typically takes place internationally, but can refer to domestic expansion as well, particularly in a region far away from the franchise’s central location and headquarters. For the purposes of Marilyn Monroe Spas franchisees, master franchising only refers to international expansion. Domestic expansion of the same type is referred to as multi-unit franchising.
Marilyn Monroe Spas recently agreed to a master franchising agreement in India to open 250 locations over the next 10 years.
Now that you’re familiar with some franchising lingo, feel free to poke around our website to learn more about our brand. For more information on franchising with Marilyn Monroe Spas, contact us today!