Franchisee vs Franchisor - Key Differences Between the Two

Entrepreneurs view franchises as a convenient method of setting up a business or expanding its reach, particularly in competitive industries. This model of entrepreneurship is extremely popular among fast food joints like McDonald’s and Subway. In India, the franchise market is expected to hit $140-150 billion by 2028.

Before you set out to take advantage of this business structure, you must recognise key terms in the field. It is particularly important for you to grasp the difference between franchisee and franchisor. So, dive deeper to learn more about it and set up your franchise model more easily.

Key Takeaway

• The franchisee is the licensed business owner operating the branded outlet of any retail mart.

• Between a franchisee and franchisor, the latter charges a small fee from the franchisee in exchange for their intellectual property and right to sell their offerings.

• The franchisee plays an advisory role and often offers guidance related to operations, marketing, and more. /p>

• The franchisee has to sell and promote the same brand and maintain quality standards similar to the parent company.

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

Origin

• McDonald’s was founded in the year 1940 in San Bernardino, California.
• Its first official franchise was opened by Ray Kroc in the year 1955.

Global Presence

• Right now, it operates in over 100 countries all over the world.
• Approximately 93% of its restaurants are owned by local businesses as franchises.

Property and Lease Management

• McDonald’s owns the properties used by some franchisees.
• In other cases, it secures long-term leases for franchised locations.
• Under the contractual agreement, franchisees are required to invest in elements such as seating, signs, and decor provided by McDonald’s.

Commitment to Quality and Consistency

• McDonald’s success lies in its ability to maintain consistent food quality globally.
• Products taste the same whether purchased in Los Angeles or Mumbai.

Franchisee Benefits

• Franchisees leverage McDonald’s global brand reputation and operational experience.
• They are allowed the flexibility to determine local pricing and recruitment policies while adhering to the company’s quality standards.

Franchisee Vs. Franchisor: Understanding Major Differences

To better understand the roles and responsibilities of franchisees and franchisors, the following table highlights the key differences:

Aspect	Franchisee	Franchisor
Ownership of the business model and brand	No	Yes
Development of the business strategy	No	Yes
Offering training and support	No	Yes
Collecting franchise fees	No	Yes
Managing the franchise location	Yes	No
Bearing the cost of setting up and operating the franchise	Yes	No
Keeping the proceeds from sales	Yes	No

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.

You can also check out our blog on ‘How to Choose Best Franchise Broker?‘ only at India Infoline.