This is the type of arrangement whereby the cost of establishing and running individual business locations is shared by the owner (franchisor) and an investor (franchisee).   They share in the cost and profits of the business but the franchisee will have greater liability for his part of the chain.  The franchisee has a greater incentive than a direct employee because he/she has a direct stake in the business. 

Franchisors usually provide financing, location, fully stocked store, pay for expenses such as rent, real estate tax, gas, water, sewer, electricity, assist with payroll management, do the marketing, set prices, etc.  In return the franchisee pays a royalty fee to the franchisor based on gross revenues or gross profits.

Learn more about franchising.

Examples of the Franchise Business Model
 

McDonalds Franchise:  Generate revenues by selling breakfast and lunch meals (items including items such as egg sandwiches, sausage sandwiches, hamburgers, fries, coffee, shakes, and other items).  Prices are set by the franchisor and a percentage of sales is paid to the franchisor.  Benefit from the large marketing budget and the name recognition of the franchisor.

7-Eleven Franchise:  Generate revenues by selling a variety of products from a retail location 24/7.  Royalties are paid to the franchisor based on gross profits and not on total revenues.  Benefit from being part of a well known brand that is known for quality, service, cleanliness and value.  The franchisor provides a fully stocked, turnkey operation; pays for wate4r, sewer, gas and electricity; building rent and real estate taxes; etc.
 

UPS Store Franchise:  Generate revenues by getting discounted rates on UPS shipping and then charge customers a profitable retail rate.  Get reimbursed from the franchisor for those customers who print their own labels and drop off the package.   Provide additional services such as notary, mailbox rentals, document service, etc.
 

Subway Franchise:  Generate revenues by selling items such as sandwiches, cookies, drinks, etc.  Very little cooking is requied on site.  Benefit from being part of a larger organization that can effectively market the business.