What is the Difference Between Franchisor vs. Franchisee?

As confusing as it may seem, the differences between a franchisor and a franchisee are pretty simple! In short, the franchisor offers and sells franchises to prospective franchisees, who look to take advantage of the expertise and, often, famous brand names of a given franchise. This business model allows both sides to reap the rewards out of a franchise agreement. The franchisor gets royalty fees from the franchisee for enabling them to use their name and business. In contrast, the franchisee hopefully benefits from using a more experienced business to leverage the business system. 

What is the Definition of Franchisee?

In a more detailed definition, the franchisee buys franchises to gain the upper hand in their new business. They are often small business owners who have the legal rights to obtain, which is different from a licensee, which is not necessarily a legal relationship. The franchisee essentially runs the business the way they would if it were their own company. However, they must make sure that they follow the franchise owner’s rules for the business. Thus, they must replicate the vision of the franchise business that the franchisor planned. Franchisees get a lot of advice and guidance from franchisors on how to run the company at a lower cost than it would be to open a start-up business from the ground up. 

What is the Definition of Franchisor?

A franchisor is a person or corporation that allows the franchisee to operate their business using its registered trademarks by paying a franchise fee. The franchisor can profit from this partnership by claiming ongoing royalties from several franchisees, which allows them to grow their successful business into a bigger empire. They are allowing the franchisee to use their business plan to promote their business in a legal agreement. They often offer training and support to new franchisees to ensure they are running the company the most efficiently as possible. As such, the franchisor is no longer responsible for the day-to-day operations of each franchise location. While it can be costly to start a franchise, sometimes upwards of $100,000, if successful, franchising your business may give back this initial investment and turn into a lucrative partnership for both parties.

What is the Role of Franchisor in Franchising?

Since the franchisor typically serves the role of the entrepreneur in the franchise system, they are responsible for the ongoing support of the franchise and franchisee to ensure the success of their own business. 

Providing the FDD 

The franchisor must make the franchise disclosure document available for franchisees that contain information about profit and loss, business expenses, information about the seller, as well as litigation and bankruptcy. The FDD should additionally outline the different fees, including ongoing and initial fees. 

Training and Support

They are also responsible for providing ongoing training programs for franchisees and their employees. By conducting training, the franchisors ensure that the business is running under their jurisdiction with standards they have already set. By getting this training, the franchisee has an inside look at an established company with proven success. The franchisor also provides marketing, advertising, and public relations support to jumpstart the business.

An Established Business Model

The franchisor should already have a business model that produces reliable results to pass down to their franchisee. By using these tried and true methods, the franchisor ensures that their business will continue working smoothly. This also goes hand in hand with a registered trademark that customers might recognize if the franchise has a following.

What is the Role of Franchisee in Franchising?

The franchisee serves the manager’s role in the specific franchise in which they run the more minor workings of the business under the franchisor’s guidance.

Following the Franchise Business Model 

First and foremost, one of the most important things a franchisee must do is to uphold the business model that the franchisor intended for the business. In this way, the franchise stays recognizable to customers with its reputation intact. If one franchisee departs from this model, it may severely affect the entire franchise as a whole. Depending on the company’s size, it can cost the franchisor millions of dollars to alleviate any missteps that harm the brand’s name. 

Royalty Fees

To continue operating under the franchisor’s brand, the franchisee pays a royalty fee to the franchisor that helps the franchisor pay for training, recruitment, and legal costs. The partnership can continue with this trade since it becomes a symbiotic relationship that allows each party to grow.

Day-to-Day Business Operations

Since the franchisee becomes the manager of their own franchise, they are also responsible for any task that comes with that business. These may include hiring/firing new staff, training these staff, selling products and services, ensuring quality control, and managing finances and accounts for the company. They would also be involved in advertising and marketing that the franchisor already created the precedent for. These promotional activities aim to bring more traffic for the business without the influence being entirely up to the franchisor.

Closing

To recap, a franchisor offers their well-established brand to prospective franchisees to bolster their business by receiving royalty fees. The franchisee has a leg up by using the franchisor’s business model, advising, and tried and true methods to be successful. For the franchisor, opening up their business to franchising allows them to still be owners of their own business model without being in charge of its day-to-day operations while still earning great money from franchising fees. The franchisee also gains multiple benefits by lessening the risk of sabotaging their own start-up businesses partly because they are responsible for less. Franchisors take care of the broader responsibilities, including advertising, research, and negotiations. 

Since it is a legal agreement, it is critical to understand both sides if you consider being part of a franchise. Be sure to research specific companies to see what works the best for you; whether you decide to become a franchisee or franchisor, adequate research is necessary to increase your chance of success! Be sure to keep up with WhyFranchise.com for these researching needs to learn more about franchising and franchise opportunities!