Franchise: Meaning and What It Changes for Loyalty
By Alva Chew · Updated
Definition A franchise is a business that operates under a franchisor's trademark, follows its method of operation, and pays for the right. For loyalty, the key question is who owns the member list and who funds rewards, because franchisor and franchisee are separate businesses. Agree both in writing before any points are issued.
What is a franchise?
A franchise is a business arrangement in which one company, the franchisor, lets another owner, the franchisee, run a business under its brand. The franchisee pays and follows the franchisor’s way of working. Each outlet is owned by its own franchisee, though customers see one brand.
What is the legal test?
In the United States, the FTC Franchise Rule says a franchise has three elements. The seller must specify or promise each of them, orally or in writing.
| Element | What the rule says |
|---|---|
| Trademark | The franchisee obtains the right to operate a business identified or associated with the franchisor’s trademark |
| Control or assistance | The franchisor exerts or may exert “a significant degree of control over the franchisee’s method of operation”, or gives significant operational assistance |
| Required payment | The franchisee makes or commits to make a required payment to the franchisor or its affiliate |
The rule sets no minimum payment. Reasonable amounts of inventory bought at bona fide wholesale prices are excluded from “required payment”.
Source: 16 CFR 436.1(h) and (s), via Cornell LII, accessed 7 November 2026, US only. Other countries have their own rules.
How do franchisees pay the franchisor?
Fees differ by brand. Domino’s reported in its fiscal 2025 annual report that US franchisees pay a royalty of 5.5% of sales plus certain technology fees, and that 6,924 of its 7,186 US stores were franchised. Wingstop reported a 6.0% royalty on gross sales net of discounts for domestic franchisees.
Source: Domino’s Form 10-K FY2025 and Wingstop Form 10-K FY2025, US, fiscal 2025.
Royalties are charged on sales, so a reward given as a discount reduces what the franchisee earns on that sale. Check how your agreement treats points rewards before you set rates.
What does it change for loyalty?
Franchisor and franchisee are separate businesses, so three questions need written answers.
- Who owns the member list and may use it
- Who pays for a reward redeemed at another franchisee’s outlet
- Which outlets take part, and under what earn rate
The FTC Franchise Rule also requires disclosure, where the franchisor mandates computer systems, of what data they generate or store and whether the franchisor has independent access. Our guide to loyalty programs for franchises covers the agreements in full, and F&B franchises covers the restaurant case.
Source: 16 CFR 436.5(k)(5), via Cornell LII, accessed 2 November 2026.
How Gimify fits
Gimify keeps one points balance across every outlet, and the flat price of US$99 a month applies to a franchise too, with no per-member or per-location fees. For 20 or more outlets, you can talk to us.
Questions owners ask
What is a franchise?
An arrangement where a business owner pays to operate under another company's trademark and under its method of operation. The company granting the right is the franchisor, and the owner who pays is the franchisee.
How does US law define a franchise?
The FTC Franchise Rule at 16 CFR 436.1(h) sets three elements. The franchisee operates under the franchisor's trademark, the franchisor controls or significantly assists the operation, and the franchisee makes a required payment.
Is a franchise the same as a chain?
No. A chain can be all company-owned outlets. In a franchise, outlets belong to separate owners who license the brand.
Who owns the loyalty member list in a franchise?
It depends on the franchise agreement and local law, so there is no general answer. Settle it in writing, as the page on franchise loyalty programmes explains.
Can a franchise run one points balance across outlets?
Yes, if the owners agree who pays when a member redeems at a different outlet. The balance itself is simple to hold as one.
Read next
Start free
Gimify is free for one outlet with unlimited members and no time limit. Unlimited outlets are one flat monthly price.
See plans