Franchise vs Franchisor vs Franchisee: What’s the Difference?
Let’s talk about franchising. For some, it’s a way to turn past success into passive income. For others, it’s a way to leverage established brands’ resources without reinventing the wheel. Continue reading to learn more about the different roles and duties that make this business model work.
Franchise Agreements at a Glance
A franchise is a business model where the owner of a brand, product, or service (the franchisor) sells their business rights to a solo entrepreneur (the franchisee), who can then use its trademarks, operating model, and processes in exchange for fees and ongoing support.While both the franchisor and franchisee share a common goal—operational success—their paths diverge in terms of responsibilities and expectations.
Basic Responsibilities Between a Franchisor and Franchisee
There are two key players at the core of every successful franchising model: the franchisor and the franchisee. Here’s what you need to know about their roles:
What’s the Role of a Franchisor?
On the other hand, the franchisor acts as the architect of the franchise’s success story. Their role spans:
- Creation of a comprehensive and scalable business model, which serves as the blueprint for every franchisee to follow, also known as the franchisor’s business model
- Fine-tuning the product or service offerings
- Crafting effective marketing strategies that resonate across all franchise locations.
Additionally, the franchisor is responsible for:
- Providing training to uphold standards across the business system.
- Overseeing brand image and quality control
- Amplifying the overall brand while offering support to franchisees.
What’s the Role of a Franchisee?
As a franchisee, you step into the role of an experienced business owner but with a safety net in place. The franchisee, by definition, is responsible for implementing business systems, hiring and training employees, and making sure they’re all aligned with the franchisor’s stipulations. While the framework is ultimately set by the franchisor, the franchisee has some room for autonomy in staff management and day-to-day decisions.
Main Differences Between a Franchisor vs Franchisee
Degree of Financial Investment
In terms of financial contributions, the franchisee starts with an upfront investment to establish their business presence. This encompasses the initial franchise fee and the costs related to securing a location, setting up shop, and commencing operations.
Additionally, franchisees are on the hook for ongoing fees, such as royalties, which funnel back into the franchise system, providing ongoing assistance and support.
On the other hand, the franchisor’s financial commitment involves:
- Establishing the foundation for the franchise network
- Investing in creating a flagship store
- Developing comprehensive business models
- Generating the marketing materials that will serve as the foundation for all franchise locations
- Training franchisees and ensuring that brand standards are upheld across the board
- Sustaining the business concept through research and development, thus fueling future growth and mitigating the risks of expansion
Level of Control and Decision-Making
In short, the franchisor defines the franchise’s operational practices and standards. They hold all the power to enforce these expectations, protected by the initial franchise agreement, which includes language to steer collective marketing efforts in the right direction and safeguard the brand’s ethos.
Franchisees’ level of control typically extends to management of their location, which includes, but isn’t limited to:
- The recruitment process
- Day-to-day operations
- Inventory management systems
- Overall customer experience
While franchisees must align with the franchisor’s business concept, they are granted autonomy to make slight operational adjustments within their specific business model. However, this autonomy comes with its own challenges, as they must navigate the constraints of the franchise system while grappling with a lack of overall decision-making freedom.
Key Franchising Terminology You Need to Know
- Franchisee: The franchisee is the party who purchases the right to run a franchise location.
- Franchisor: As the owner of the brand and business model, the franchisor licenses their intellectual property, trademarks, and systems.
- Franchising: A business expansion strategy characterized by granting licenses to use a company’s trademark, brand, and operational systems in exchange for a fee.
- Royalty: A recurring fee paid by the franchisee to the franchisor, which is typically calculated as a percentage of the franchisee’s gross sales.
- Trademark: A trademark is the unique brand name, logo, and other distinctive marks that identify a franchise.
- Disclosure Statement: The Franchise Disclosure Document (FDD) is a report provided by the francishor to the franchisee, which offers transparency into the company’s operations.
- Business Format Franchise: A standard franchising model which liscences the product, service, branding operational blueprint, marketing strategies and procedures.
- Product Distribution Franchise: In this model, the franchisee only focuses on selling the franchisor’s products. They operate independently and aren’t confined by any pre-determined business operations or methodologies.
Take the Hassle out of Marketing Your Franchise
For both the franchisor and franchisee, one aspect that often proves challenging is advertising. With the ever-evolving landscape of digital marketing, navigating social media, PPC advertising, SEO, and email outreach can be overwhelming—that’s where outsourced marketing efforts can make all the difference.
Enter Timmermann Group. We’re a full-service digital marketing agency dedicated to helping franchises like yours maximize their online presence and drive real, tangible results. Let us take the hassle out of marketing your franchise so you can focus on what you do best: running your business.