Franchisee vs Franchisor – Key Differences Between the Two

Definition of Franchisee and Franchisor

A franchisor holds and leases a licensed business model to an external force. This third party is referred to as the franchisee. The franchisor charges a fee to allow the franchisee to utilise their business model at a particular location. So, the franchisee is the company or individual that acquires the right to sell the offerings of the franchisor.

Decoding the Relationship Between the Franchisor and Franchisee

The franchisee and franchisor relationship is similar to that of an advisee and advisor. The franchisor remains responsible for offering advice and guidance in different areas:

• Recruiting and training employees

• Setting up a physical store

• Promoting the products or services

• Sourcing the supply

The franchisee needs to pay a small fee for the advice and use of intellectual property. Usually, a percentage of the gross revenues is also paid out to the franchisor. The franchisee must be assigned an exclusive location so that it can successfully avoid competition.

Benefits of a Franchise Business

The franchise business structure is beneficial for both the franchisee and franchisor in the following ways:

• The cost of setting up this type of entrepreneurial model is cheaper than starting a venture from scratch.

• The business receives immediate brand recognition along with a supply system and marketing campaign.

• Franchisees embrace the practices of the franchisor instead of having to establish their own.

• The franchisor actively offers advice and remains supportive of the growth of the franchisees.

Key Responsibilities of a Franchisee

Before you get invested in understanding the difference between franchisee and franchisor, let’s focus on primary roles. A franchisee is responsible for the following:

• Growing the franchisor’s business in a suitable location

• Protecting the brand reputation of the franchisor

• Bearing the expenses for setting up the business

• Learning business operations and standards in detail

• Keeping up with operational policies

• Abiding by the business marketing strategy with brand usage guidelines in mind

Key Responsibilities of a Franchisor

While understanding the difference between franchisee and franchisor, know that the role of the latter party keeps changing according to the franchise agreement and business model. One key function of the franchisor is providing the franchisee with a valuable opportunity to set up their business without the risks of independent startups.

The other responsibilities of a franchisor include:

• Enabling the franchisee to offer services under the brand name of the business

• Delivering initial training related to growing the business and executing daily operations according to the established entrepreneurial model

• Delivering on-site training for opening day and beyond

• Providing a well-curated list of approved suppliers and vendors to obtain the right materials and equipment

• Supporting suitable marketing and advertising programs

• Offering guidance related to the developed business practice

• Allowing the franchisee to receive continuous support with operations, administration, and more

Real-life Example of the Franchise Business Structure

We are all familiar with the fast food joint of McDonald’s. It is a prominent example of a company that established a global presence by leveraging the franchise model. McDonald’s came into existence in 1940 in San Bernardino, California.

But its first official franchise was opened by Ray Kroc in 1995. Currently, McDonald’s is present in more than 100 countries. Among them, 93% of the restaurants are under the ownership of local businesses.

McDonald’s owns the properties used by franchisees in some places while securing long-term leases for other franchised areas. According to the contractual agreement, franchisees need to pay for a part of the seating, signs, and decor provided by the company in the location.

McDonald’s has managed to find success with the franchise business model through its unwavering commitment to maintaining the same food quality everywhere. So, what you order in a Los Angeles store will taste the same as one in Mumbai. The franchisees benefit from the global experience and brand image of McDonald’s, with the freedom to determine their own prices and recruitment policies.

Franchisee Vs. Franchisor: Understanding Major Differences

If you want a clear idea of the difference between franchisee and franchisor, the tabular representation below can help:

Ending Note

Understanding the difference between franchisee and franchisor is key to expanding this particular business model in fresh directions. In this particular segment, McDonald’s emerges as a prominent example of embracing the product line and merchandise of a franchisor.