The franchise / licensing business model
A franchise or licensing model scales a proven brand, process or technology through independent local operators, rather than the company opening and running every location itself.
The basics
Scaling through others’ capital
Independent franchisees or licensees put up their own capital to open and run each location or operation, letting the company expand geographically faster than it could by funding every unit itself.
Two revenue streams
Franchisors typically earn an upfront franchise fee (for the right to operate under the brand) plus an ongoing royalty (usually a percentage of each unit’s revenue) — see the worked example below.
Less common in early-stage LATAM startups
Franchising is well established in mature categories like restaurants and retail, but is a less common model among the region’s early-stage startups than marketplace, platform or D2C — worth noting if a pitch leans heavily on this structure.
A worked example
A franchisee opens one unit under license. Here is what the franchisor earns from it in a typical year.
| Amount | |
|---|---|
| Upfront franchise fee (one-time) | $20,000 |
| Unit annual revenue | $500,000 |
| Ongoing royalty (6% of revenue) | $30,000/year |
Illustrative — franchise fee and royalty percentages vary widely by industry and brand maturity.
What to check before investing
Ask what quality-control mechanisms exist across franchised or licensed units — brand consistency is the central risk in this model, since a poorly run independent location can damage the whole brand’s reputation, not just that one unit’s revenue.
Also ask how much revenue actually comes from ongoing royalties versus one-time franchise fees — a business overly reliant on selling new franchises to generate revenue, rather than on existing units performing well, is a meaningful red flag (a pattern sometimes associated with weak or failing franchise systems more broadly).