If you're considering starting a franchise business, you've probably come across the terms 'franchisor' and 'franchisee'. Understanding the difference between these two roles is essential before entering into a franchise agreement. In this guide, we'll explore the differences between a franchisor and a franchisee, what each is responsible for, and when a franchise agreement is needed.
What is a franchisor?
A franchisor is the person or company that owns the overall business, including its brand, trademarks, and business model. The franchisor grants individuals or companies the right to operate under their established brand name in exchange for fees and adherence to specific rules and guidelines.
Franchisors are often well-established businesses looking to expand their reach without managing every individual location themselves. Instead, they allow independent operators, known as franchisees, to run their own branches using the franchisor’s brand name, operational systems, and support.
What are a franchisor’s responsibilities?
A franchisor has several key responsibilities to ensure the success of the franchise network. These responsibilities include:
Developing and maintaining the brand, including trademarks, marketing materials, and business identity
Providing franchisees with comprehensive training on how to operate the business successfully
Offering ongoing support, including guidance on business operations, marketing strategies, and product or service updates
Creating a business model that franchisees can follow to ensure consistency across all locations
Supplying franchisees with the necessary products, equipment, or technology to run the business effectively
Setting and enforcing operational standards to maintain quality and brand reputation
Conducting market research and implementing business improvements to keep the franchise competitive
Managing the legal aspects of the franchise, including franchise agreements and compliance with relevant regulations
What is a franchisee?
A franchisee is an individual or business that purchases the rights to operate under a franchisor’s established brand. Franchisees invest in a franchise with the goal of running their own business while benefiting from an already successful brand and support system.
Unlike an independent business owner who builds a company from scratch, a franchisee follows a proven business model and receives guidance from the franchisor. In return, franchisees usually pay an initial franchise fee as well as ongoing royalties to the franchisor.
What are a franchisee’s responsibilities?
Franchisees have their own set of responsibilities that ensure the success of their business while upholding the franchisor’s brand reputation. These responsibilities typically include:
Paying initial franchise fees and ongoing royalties to the franchisor
Following the franchisor’s established business model, including operational procedures and brand guidelines
Managing the day-to-day operations of their franchise location, including hiring staff, customer service, and financial management
Participating in training programs and implementing the franchisor’s best practices
Marketing the business locally, often in collaboration with the franchisor’s national or regional marketing efforts
Maintaining high-quality service and customer experience standards
Reporting financial performance and other required data to the franchisor
Renewing the franchise agreement if they wish to continue operating under the brand after the initial contract term ends
💡Editor's insight: "If you're not sure about your franchise obligations or need legal help, always use a credible and experienced franchise solicitor. In the UK, there is no specific legislation governing franchising. That said, there are several laws and regulations that apply to franchises and that you might need advice with."
When do you need a franchisor agreement?
A franchise agreement is a legally binding contract between the franchisor and the franchisee. It outlines the terms and conditions under which the franchisee can operate under. This agreement is necessary when a business owner decides to expand their brand using the franchise model or when an individual decides to buy into a franchise.
A franchise agreement is required in situations where:
A business owner wants to expand their business by allowing independent operators to open franchise locations
An individual wants to operate a business under an established brand
Both parties need a legal contract to define their rights, responsibilities, and financial obligations
Protection of brand identity, operational consistency, and business standards is essential
The franchisor needs to establish rules regarding business operations, marketing, and fees
You can learn more in our full guide to what is a franchise agreement.
Franchisor vs. Franchisee compared
Although franchisors and franchisees are part of the same business system, their roles and responsibilities are very different. Here are the key differences:
Aspect | Franchisor | Franchisee |
|---|---|---|
Ownership | Owns the brand and business model | Operates a branch of the business |
Business control | Sets rules and standards | Follows franchisor's guidelines |
Investment | Provides the business model | Pays franchise fees and manages operational costs |
Support and training | Provides training and business support | Implements training and operates the business |
Revenue model | Earns money from franchise fees and royalties | Earns money from business operations |
Recap: What’s the difference?
The main difference between a franchisor and a franchisee lies in their roles within the franchise system. The franchisor is the brand owner who grants business rights to franchisees, while the franchisee is the individual or business that runs a franchise location using the franchisor’s brand and business model.
While the franchisor focuses on brand growth, training, and operational consistency, the franchisee is responsible for managing their business location and delivering high-quality service. Together, they work to ensure the overall success of the franchise.
FAQ
What is the relationship between a franchisor and a franchisee?
The franchisor and franchisee have a mutually beneficial relationship. The franchisor expands their brand without managing each location directly, while the franchisee gets to operate a business using a proven model with established brand recognition.
What are the main benefits of being a franchisor?
Franchisors benefit from business expansion with lower financial risk, as franchisees invest in new locations. They also earn revenue through franchise fees and royalties while maintaining control over the brand.
What are the risks of being a franchisee?
Franchisees face risks such as high initial investment costs, ongoing fees, and the requirement to follow strict guidelines set by the franchisor. If the franchisor's reputation suffers, it can also impact the franchisee's business. You can learn more in our guide to the advantages and disadvantages of franchising.
Can a franchisee become a franchisor?
Yes, some franchisees eventually become franchisors by developing their own brand and business model after gaining experience in the franchise industry.
How long does a franchise agreement last?
Franchise agreements typically last between five and ten years, depending on the terms set by the franchisor. They can often be renewed if both parties agree.
Final thoughts
Understanding the difference between a franchisor and a franchisee is essential for anyone considering entering the world of franchising. While franchisors provide the business model, training, and support, franchisees are responsible for managing their individual locations and ensuring the business runs successfully. Both roles are crucial to the success of the franchise system, making it a powerful business growth model when executed correctly.
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