Up until now, the most common way to invest in a franchise is to buy its stock, if publicly traded. Don’t get me wrong, investing in any big franchise is great, but you are still subject to the whims of the market. You also might only see a minuscule fraction of the companies overall profits in dividends.
As mentioned before, McDonald’s, Wendys, Dunkin Donuts, KFC, and Burger King are some of the most popular franchises. But, what exactly is a franchise. Its technical definition is the right or license granted by a company (franchisor) to an individual (franchisee) to market and/or trade products and services in a specific area or territory.
What the heck does that mean? Basically, you have a company that allows individuals to use their logo, promotions, and overall brand, at a cost. For example, as we all know, Mcdonald’s is a company that sells burgers, among other products.
However, each McDonalds (for the most part) is owned by different individuals. They paid their franchise fees of about 45k in order to buy the rights to using Mcdonald’s branding. They also pay McDonald’s corporate 5% of their monthly sales.