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How the franchising contract works

The most important characteristics and elements of a franchising contract

The franchising agreement is a commercial agreement that allows companies to expand their brand and business by partnering with a network of independent franchisees. 

This type of commercial agreement is based on a collaboration between two parties: the franchisor, owner of the brand and holder of the know-how, and the franchisee (or affiliate), the entrepreneur who decides to invest in the brand by adopting models of business, strategies and distinctive identity.

This collaboration agreement represents an increasingly widespread and appreciated business model globally and constitutes one of the most efficient ways of developing and expanding brands and companies in various commercial sectors.

According to a recent study by Business Research Insights, the sector is expected to exceed the value of 175 billion dollars within the next three years: this business model is in fact becoming increasingly popular among entrepreneurs, because it allows you to own and manage a company that has already been established.

The advantages of the franchising contract lie in its ability to provide franchisees with the right to use an established brand and business model, while also granting exclusive access to a package of training, ongoing support and, sometimes, exclusive financing and supply agreements.

This allows franchisees to open a new business by reducing the risks typically associated with starting a business from scratch, while benefiting from the franchisor’s already established image and reputation.

In this article, we will explore in detail what the franchising contract is, analyzing its main characteristics and the most important clauses that regulate the relationship between the parties.

From the definition of the obligations and rights of both parties to the management of royalties, from the support provided during the start-up of the business to post-opening assistance. The objective is to provide an overview to potential entrepreneurs on the dynamics of the franchising commercial affiliation contract, which represents a growth opportunity not only for those seeking to expand their brand, but also for those who wish to undertake an entrepreneurial path making use of the support of an already consolidated reality.

Point 1. The sector globally records an average annual growth rate of 9.73%

Point 2. The solidity of the brand and the presence of a consolidated corporate structure guarantees affiliates a considerable boost to business growth.

The main characteristics of the franchising contract 

The franchising contract regulates the legal relationship between the franchisee and the franchisor, defining the role of both, the obligations required for its fulfillment, the rights and methods of carrying out the activity.

This legal agreement is made up of some clauses intended to regulate, for example, the duration, the expected royalties and any entry fee, the exclusive use of the brand’s brands, products and services, the support and assistance provided by the franchisor.

Although there are international guidelines that aim to standardize some fundamental aspects of the franchising contract, the applicable legislation varies significantly from one country to another, reflecting the legal, economic and cultural peculiarities of each legal system. Let us examine the main elements of the franchising contract together:

    • Duration, renewal and withdrawal. The duration of a franchise agreement is a key element that establishes the period of time during which the franchisee is authorized to use the brand and the know-how of the brand. This duration can vary significantly depending on the brand and the sector in which it operates, often extending from 5 to 10 years, with the possibility of renewal. Indeed, it is essential that the contract clearly specifies the renewal conditions, such as the required notice and any applicable fees, in addition to the withdrawal procedures, which allow both parties to conclude the agreement in a fair and transparent way, if expectations are not met or changes in market conditions occur. 
    • Entry fees e royalties. The entry fees constitute the fee requested from the franchisee at the beginning of the commercial relationship: they generally cover the rights to use the brand, the transfer of know-how by the franchisor and the use of the brand’s distinctive signs. Royalties, on the other hand, are periodic payments paid by affiliates, which can be calculated as a fixed amount or as a percentage of the turnover generated by the activity. These contributions finance the ongoing services provided by the franchisor, such as technical support, marketing campaigns, training courses and access to partnerships established with banks and suppliers. 
    • Franchise package. The franchise package includes all the elements provided by the franchisor to ensure the start-up and effective management of the business. This includes the use of the company’s distinctive signs, operational know-how, technical and commercial assistance, as well as training programs for the entrepreneur and his staff. These elements are essential to maintain brand consistency and operational efficiency across all regional locations, while ensuring that each partner has the knowledge and resources needed to develop their business.
  • Purchase prices. Often, especially in agreements concerning the distribution of goods, it is envisaged that the affiliate does not pay royalties, but proceeds to purchase a minimum quantity of goods at a certain price. It is important that the contract clearly establishes how the prices of these goods will be determined, ensuring fair and advantageous conditions for the franchisee, without compromising the quality or accessibility of the products or services offered to end customers. 
  • Exclusivity and non-competition agreement. Territorial exclusivity ensures the franchisee the right to operate in a specific geographical area without direct competition from other franchisees of the same brand. The non-competition agreement, on the other hand, imposes restrictions after the conclusion of the franchise agreement, prohibiting the franchisee from starting a similar business or working for a competitor for a certain period of time. These elements aim to protect the investments of both the franchisee and the franchisor, ensuring a win-win collaboration for both parties. 
  • Operational standards and quality of service. It is crucial to include detailed clauses in the franchise agreement regarding the operational standards and quality requirements to be guaranteed by the partners. This ensures that all stores reflect the brand’s image and values, offering a consistent, high-quality experience to customers. Detailing these standards helps prevent territorial discrepancies and maintain brand integrity on a global scale. Additionally, this section of the agreement may include provisions governing audits and compliance assessments, establishing a transparent and impartial mechanism to ensure adherence to agreed standards.

Incorporating these elements into the franchise agreement helps create a solid and transparent basis for a fruitful collaboration for both parties.

Mail Boxes Etc. offers entrepreneurs a business model with which it is possible to have access to a consolidated network of partners worldwide, which operates using professional solutions designed to boost the growth of the company.

From e-commerce to logistics, from marketing campaigns to international shipping services, MBE solutions offer entrepreneurs the opportunity to become a point of reference for Business and Retail customers. Entrepreneurs can open an MBE center to start and develop their own business with the financial support and continuous training offered by MBE.

Location and Premises

The success of a retail franchise like MBE heavily depends on its location. Ideal premises should offer visibility, accessibility, and convenience for customers, with moderate rental rates to ensure business viability. 

MBE supports franchisees in site selection, leveraging market research and demographic analysis to choose locations that maximise customer engagement and sales potential.

Operational Support

MBE distinguishes itself by providing franchisees with a structured support system covering every operational aspect. From staffing and store fit-out to comprehensive training in business management and customer service, MBE ensures its franchisees are well-prepared to meet the brand’s high standards.

Marketing and Brand Recognition

Franchisees benefit from MBE’s strong brand recognition, which attracts a steady customer base. 

The franchise model offers extensive marketing support, including local and national advertising campaigns, promotional materials, and online marketing strategies, designed to enhance brand visibility and attract customers.

The Comprehensive MBE Franchise Package

MBE offers a transparent breakdown of the costs involved in establishing a franchise, including premises preparation, technology and equipment, furniture, and branding materials. 

The total investment required ranges from £54,250 to approximately £60,000, depending on whether technology and equipment are leased or purchased outright.

Franchisees are encouraged to engage with the MBE network, sharing best practices and benefiting from the collective experience of operating within a supportive franchise system. This network fosters a community of franchisees who can collaborate, share insights, and collectively contribute to each other’s success.

Choosing to invest in a franchise like Mail Boxes Etc means stepping into a business model that offers brand recognition, a comprehensive support system, and a diverse range of services. 

By carefully considering the financial commitments, selecting the right location, and leveraging the extensive support offered by the franchisor, franchisees can navigate the complexities of franchise ownership and set themselves on a path to success in the competitive retail sector. 

MBE’s structured approach to franchise operations exemplifies how aligning with a reputable brand can significantly mitigate the risks associated with starting a new business, making it an attractive option for entrepreneurs looking to invest in a franchise.

Open a new MBE Center

Mail Boxes Etc./MBE Centers are operated by independent operators as franchisees, who operate under a franchise agreement under the brand name of MBE. Through its franchise network Mail Boxes Etc. provides support services for businesses and individuals. Logistics and shipping services represent the main services of MBE – enabled by MBE through contractual agreements concluded for the benefit of its franchisees with the main domestic and international express couriers - and other graphics and printing services - provided either directly or on the basis of agreements with large printing centers. The promotion of services for business and private customers is carried out in the framework of the business activity of each MBE franchise partner within and outside of the MBE Centers ("farming"). Each franchise partner is contractually obligated to perform such activities. Mail Boxes Etc. and MBE are registered trademarks used with permission of Fortidia - a registered trademark of MBE Worldwide S.p.A - (All Rights Reserved). The services offered by the individual MBE Centers can vary depending upon the location. The material available on this Internet site, the information contained herein and any other relevant related data may not in any manner be copied, distributed, changed, republished, reproduced, downloaded or forwarded to third parties, without the expressed prior written authorization of Sistema Italia 93 S.r.l. We accept no responsibility with regard to the unauthorized use of the material available on this Internet site, the information and/or the data contained herein.