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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.
A lot of people get confused when it comes to franchisee vs franchisor. The words sound similar, but they mean very different things. Let’s understand what they mean.
The franchisor is the original owner of a successful brand, product, or service with plans to expand quickly without opening new locations themselves. Instead, they offer licenses of their business model, brand name and operational details to others. To put it differently, the franchisor is the source. In fact, franchisor meaning is that these are the very people who created the concept, executed a market test, fine-tuned it and are now prepared to share it with you for a fee.
When the owner of the brand decides that growth through partnerships instead of direct ownership looks more appealing, the franchisor vs franchisee relationship is born. Generally, franchisors assist with training, marketing, business framework, and brand materials.
If you ask for the franchisee definition, he or she is the individual or entity that buys the right to run a business using the franchisor’s model, branding, and operations manual. While the franchisor owns the big picture (the name, trademarks, business formula), the franchisee owns and runs their local branch. In return for a fee (and sometimes ongoing royalties), the franchisee gets to start a business that already has a working blueprint.
So, in the franchisee vs franchisor structure, the franchisee is the one on the ground. They’re hiring staff, managing operations, and ensuring everything runs according to the agreed standards. The difference between franchisor and franchisee is often described as “strategy vs execution.” The franchisor sets the vision; the franchisee brings it to life.
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:
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. On that note, it’s time to understand the roles of franchisee and franchisor separately.
Before you get invested in understanding the difference between franchisee and franchisor, let’s focus on the primary roles. A franchisee is responsible for the following:
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 to provide the franchisee with a valuable opportunity to set up their business without the risks of independent startups.
The other responsibilities of a franchisor include:
To better understand the franchisee vs franchisor responsibilities and roles, 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 |
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.
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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
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
The four types of franchising are:
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