How Does a Franchise Work? A Beginner’s Guide for UK Entrepreneurs

Introduction

If you’ve ever wondered how franchising actually works behind the scenes, this guide explains the franchise model in everyday language. Whether you’re exploring your first business or comparing options, understanding the mechanics of franchising is key to deciding if it is the right fit for you.

The Franchise Relationship

At its core, franchising is a contractual partnership between two parties: the franchisor and the franchisee, where a franchisor licenses its brand, system, and support to a franchisee, who pays fees (initial & royalties) to operate an independent business using their established model. For mutual success to occur, it requires trust, clear communication, and adherence to the franchise agreement balancing franchisor’s brand control with franchisee’s operational autonomy.

The Franchisor

The franchisor typically provides the brand name, a proven business model, systems and training, marketing or marketing support and ongoing support. This is the key benefit of franchising. Instead of going it alone and having to come up with all of this on your own or struggle with starting your business, you are able to replicate what already works.

The Franchisee

You as the franchisee, make an investment and commit to follow the franchisor’s system. You will need to do your own local marketing and provide operational management of your business.

What You Pay as a Franchisee

Most franchises include 3-4 main costs. The initial franchise fee, a monthly royalty fee, a marketing or brand contribution, also normally charged monthly and startup costs of buying or leasing your location, buying equipment, hiring staff, and setting up your business Insurance.

Initial Franchise Fee

An initial franchise fee is a one-time, upfront payment a franchisee makes to a franchisor for the right to join their system, access their brand, business model, training, and support. It is essentially a licensing fee for using the established brand and systems to open and operate a business. This fee covers startup costs like training, marketing, and site development, and is detailed in the Franchisor’s Franchise Agreement. Fees vary widely by industry but generally range from thousands to tens of thousands of pounds. 

Royalty Fees

A royalty fee is a recurring payment, usually a percentage of sales, paid to the franchisor for using their brand, intellectual property, and system. this covers covering ongoing support. These fees are vital in franchising, funding franchisor operations, and are typically paid weekly or monthly, distinct from the one-time initial franchise fee. 

Marketing/Brand Fund Contribution

A Marketing/Brand Fund Contribution is common in franchising. It is a mandatory fee (usually 1-4% of revenue) pooled from franchisees to fund system-wide advertising, building brand recognition, and creating national campaigns that benefit all locations, managed by the franchisor for collective brand strength.

Start-up Costs

Franchise startup costs vary wildly, from under £10,000 for home-based businesses to millions for full restaurants, but most fall between £100,000 and £300,000, these typically include build-out, equipment, and accounting for working capital, with lower-cost options often in service, education, or youth sports. Most franchises will provide a range of expected startup costs and offer an equipment package for you to purchase.

What You Get in Return

As a franchisee, you can expect a ready-built brand customers trust. The franchisor will provide start-up guidance and initial training to help you launch your business. the will also provide you with an operations manual to follow to maximize your results, give you access to supplier discounts, provide marketing templates to help you drive your local marketing strategy. You can also expect a franchisor advisors or consultant that will provide ongoing coaching and continued field support.

Why Franchising Works So Well

The franchising model provides substantial advantages for both the franchisee (the local owner) and the franchisor (the brand owner). The system is already tested — meaning your risk is lower than starting alone. You benefit from the franchisor’s experience, systems, and network.

It combines the entrepreneurial drive of local owners with the safety and resources of an established brand, leading to lower failure rates and accelerated growth. The British Franchise Journal provides powerful evidence that franchising is one of the safest ways to owning your own business.

According to the survey published by the BFA (British Franchise Association), an incredible 99.5% of franchises succeed, in stark contrast to the 50% failure rate of independent startups, within their first three years. This survey data affirms that franchising offers a highly reliable and profitable route to self-employed business ownership in the UK.

The Franchise Agreement

A franchise agreement is a legally binding contract between a franchisor and franchisee. It details the responsibilities of each party, the fees associated with ownership, the rights of each, brand use, territory, contract length and expected support. It is the core document for the franchise relationship. Though there is no mandatory government disclosure document in the UK like in other countries, making independent legal review by UK franchise solicitor important for both parties. It’s customized for each business, covers the brand’s operational rules (often via an Operations Manual), and must comply with UK competition laws.

Final Thoughts

The franchising model provides substantial advantages for both the franchisee and the franchisor . As a business owner, you get  to build your business around an already tested system with built-in brand recognition all while leveraging the franchisor´s experience — meaning your risk is lower than starting alone. Franchising works because it combines independence with support. If you want to run a business without building from scratch, franchising is a strong option.