What Is the Difference Between a Franchisor and a Franchisee?

Recently, we discussed franchising as a definition and how the business system came about. In our previous post, we talked about several types of franchise models and the differences between them. You’ve also learnt about the franchise agreement and what to look for before signing one.

Today, we’ll focus and talk in more detail about the difference between the franchisor and the franchisee and their distinct roles in a franchise business relationship.

In case you missed, let’s recap what a franchise is.

Franchising is a business relationship between an established entrepreneur – the owner of a said business, called the franchisor, and an individual or another business entity – the franchisee. The latter agrees to run their own enterprise under the same business name and under specific conditions for a fee. The relationship between the two is determined by these conditions, which are well-defined in a legal contract, called a franchise agreement. The agreement also explains each party’s rights and obligations.

What is the relationship between a franchisor and a franchisee?

Simply put, the franchisor is the “mentor” in the relationship, the person with ideas and beliefs. He provides the well-developed franchise business model, which the franchisee buys into. So, in that sense, the franchisee is a follower. The franchisee abides by the rules and conditions of the franchisor. The franchisee is willing to own and run a business without taking any great risks.

What’s the role of the franchisor?

Depending on the type of franchise model, the franchisor’s obligations and responsibilities include the following but not limited to:

As we’ve already noted, the franchisor offers the franchisee the opportunity to run their own business without the common risks, associated with a startup that is grown and developed from scratch.

• Allows the franchisee to trade/provide services under the business brand name;
• Provides initial training and guidance on how to build the business, based on their proven business model;
• Offers a list of vendors and suppliers of equipment and materials, required for operating the business;
• Ensures that the new franchisee works in a non-compete environment with respect to other franchisees from the same franchise network (each member operates within a designated area);
• Provides an effective marketing strategy and advertising materials;
• Offers know-how in terms of the developed business practices and standards
• Teaches about tactics on how to progress and succeed in a market competition environment;
• May provide additional training on how to develop better customer-service, managerial and organisational skills;
• Shares details about the business’s already established client base and often provides job leads (acts as an agent between the franchisee and the client);
• Makes sure that the franchisee receives ongoing support in relation to administration, finances, insurance, certification, marketing merchandise, brand exposure and more.

What’s the role of the franchisee?

From the moment the franchisee pays the initial fee to represent the established business and signs the franchise agreement, they are invested with the following responsibilities and obligations:

• Develops the franchisor’s business in a chosen location and protects its image and reputation;
• The franchisee covers different types of costs for establishing their business (for a vehicle, premises, machinery, tools and materials);
• Often pays an ongoing royalty fee;
• Gets familiar with the business model and invests the time to learn about its standards and practices;
• Follows closely the parent company’s procedures and processes;
• Applies the business marketing strategy (brand logo usage guidelines, policy on special deals and discounted offers);
• Runs the business in a disclosed manner (does not compete with the franchisor);
• The franchisee does not use the business resources purely for their own gain;
• Takes up willingly the opportunity to update their skills through different forms of training;
• Ensures that their team of employees is fully qualified to contribute to the success of the business.

Only when the franchisor and the franchisee keep up with their responsibilities and obligations, defined by the terms and conditions of the legally-signed franchise agreement, their relationship will thrive and the business will expand and grow.

• Last update: November 17, 2020

Posted in Industry Insights