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

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:

Role Franchisee Franchisor

Ownership of the business model and brand



Development of the business strategy



Offering training and support



Collecting franchise fees



Managing the franchise location



Bearing the cost of setting up and operating the franchise



Keeping the proceeds from sales



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.

Frequently Asked Questions

Ans:There is often confusion regarding who between the franchisee and franchisor owns the business. Well, ownership belongs to the franchisee. As the owner, it can utilise the products offered by the franchisor. As per the contract, the franchise can only use products and services authorised by the franchisor.

Ans:No, they are not the same and understanding the difference between franchisee and franchisor is crucial. The franchisor serves as the entity owning the intellectual property, trademarks, and patents of the franchised brand. Meanwhile, the franchisee purchases the right to operate in one location of the franchisor.

Ans: Between a franchisee and franchisor, the former can be easily fired. The franchisor holds the right to close any of its licensed operators that disobey the rules. The violation is often related to health and safety standards.

Ans: Between a franchisee and franchisor, the former needs to pay a royalty fee to the latter. This charge is for leveraging the advisory services and established business model. Usually, the fee paid out to the franchisor is below 10% of the overall franchise revenue

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