Franchisee vs franchisor: Know the difference between them and their roles?
Franchising is an agreement in which the franchisor offers or licences certain rights and powers to the franchisee. Franchising is a popular marketing approach for expanding a company. Many people mistake a franchisee and a franchisor for the same thing, yet they differ in several ways. How do they differ, franchisee vs franchisor?
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TABLE OF CONTENTS
- Franchisee vs franchisor
- What is the difference between a master franchisor and a franchisee?
- What is the relationship between the franchisor and the franchisee?
In business, it is crucial to understand how franchisees and franchisors differ. Individuals who want to operate their own business should consider becoming franchisees. Becoming a franchisor can help existing business owners develop and grow their operations in other locations.
Franchisee vs franchisor
What is the difference between a franchisor and a franchisee? A franchisee is a shareholder who buys the rights to exploit a successful brand's trademarks and business strategy. Franchisees are divided into master franchisees, multi-unit, and single-unit.
On the other hand, a franchisor is a firm that sells franchisees the rights to open and run franchise stores using its trademarks. A franchise unit may sell proprietary product lines by the franchisor's business plan.
| Franchisee | Franchisor |
| A franchisee is a person or company that buys the right to use the franchisor's trademarks, brand name, and business plan to run their own business. | The franchisor is a reputable company that allows the franchisee to utilise its intellectual property, brand name, and company structure in exchange for revenue and royalties. |
| The franchisee controls and manages each franchise location by the terms and conditions of the franchise agreement. | The franchisor generates revenue by selling franchise licences and paying recurring royalties. It may also offer franchisees equipment, products, or services. |
Roles and responsibilities
What is the role of a franchisor and franchisee? When a franchise agreement is signed, the franchisor and franchisees are assigned various duties and responsibilities. Here are the distinct roles and responsibilities of a franchisor and a franchisee:
Franchisee roles and responsibilities
According to the International Franchise Association, a franchisee is an individual or corporation who buys a franchise from a business owner. Here are the primary obligations of a franchisee.
1. Site selection
With the franchisor's permission, a franchisee must choose an appropriate location for their unit. The franchisee's chosen region will be evaluated based on the franchisor's territorial criteria. If the franchisor provides protected areas, each new location must adhere to those restrictions and be located so that it does not interfere with present or future franchise locations.
2. Hiring and training employees
The franchisee will be responsible for posting job openings, reviewing applications, interviewing prospective applicants, and training new employees; however, the franchisor may assist by supplying training materials or hiring standards.
3. Marketing and advertising
While the franchisor generally offers marketing and promotional materials, the franchisee may charge them. Based on the terms of the agreement, franchisees may be required to contribute to the brand's total marketing, advertising, and promotional budgets to build interest in the company's goods.
4. Manage daily franchise operations
Franchisees are in charge of the everyday operations of their franchise businesses. Although franchisors may suffer significant losses when a franchise operation fails, the franchisee bears the brunt of the burden.
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5. Follow the rules and guidelines
Franchisees are not required to undertake the heavy lifting of planning, designing a business model, or generating items. They must only adhere to the franchisor's business strategies and operational rules. Breaking the franchisor's operational regulations may result in sanctions and, eventually, the denial of future franchise renewal approval.
6. Pay royalties
The franchisee will be accountable for paying the franchisor a weekly or monthly portion of its sales.
Franchisor roles and responsibilities
According Commonwealth of Australia, a franchisor is a person or company that lets another utilise its brand, intellectual property, and expertise to open a branch of its firm for a charge. Here are the duties of a franchisor.
1. Providing support
A franchisor must provide continuing support to their franchisees. If a franchisee requires assistance with stocks, new-hire training, or marketing purposes, the franchisor must supply it, even years after the agreement was signed. In return, the franchisor receives recurring royalties from all franchisees.
2. Planning for the future
Franchisors must envision where they want the firm to go. Since the franchisor is accountable for the brand's entire success, it must understand how to constantly improve operations, grow the business model, and design updates or new goods and services to meet consumer demands.
3. Vet franchisees
The franchisor's primary requirement is to confirm financial eligibility. The franchisor's corporate vetting process should also guarantee that potential franchisees share the franchisor's values, have a strong work ethic and a desire to learn, and can adhere to time-tested systems and procedures.
4. Site selection
A franchisor's responsibility includes planning the organisation's expansion through demographic market analysis and research. Knowing the ideal places to provide franchise possibilities can help franchisors prepare franchisees for prosperity.
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5. Covering advertising costs
A franchisor's primary responsibility is to assist its brand's marketing efforts, which include brand promotion, trademark protection, and the implementation of quality requirements for its goods and services. Franchisors frequently give all franchisees already approved, validated marketing materials to guarantee a consistent brand across media and locales.
6. Training employees and monitoring performance
Franchisors assist franchisees in educating employees by providing training materials and continuing support. The franchisor oversees franchisees to ensure they follow business rules and regulations and will take action if any deviate.
Franchisor vs franchisee example
The food business has some prominent examples of franchisees and franchisors. Franchises, however, can operate anything from supermarkets to hotels, movie theatres, and retail shops. McDonald's, Kentucky Fried Chicken (KFC), and Olive Garden are among the best-known food franchisors.
Franchisee vs franchise owner
Is a franchisee an owner? No. The primary distinction between franchisors and franchisees is that a franchisor owns a licenced business model. In contrast, a franchisee pays the franchisor for employing that business model, including the products, brand, processes, and services at a specified location and for a given time.
What is the difference between a master franchisor and a franchisee?
A master franchise is a franchise agreement in which the franchise brand's owner, the master franchisor, allows another party the authority to recruit new franchisees in a defined geographic area.
In exchange, the other party often pays a fee and agrees to take on some or all of the duties of training and supporting new franchisees in their area. A master franchisee's position in their region is comparable to that of a franchisor; hence, they are called sub-franchisors.
What is the relationship between the franchisor and the franchisee?
The franchisor owns the franchise's trademark(s) and operating system. The franchisee is granted permission to use both the brand and the operating system subject to the terms and limitations outlined in the franchise agreement. The contract requires both the franchisee and the franchisor to execute their duties.
The comparison between the franchisee and franchisor reveals the difference between the two business entities. A franchisor is often a business owner who has created the groundwork for a profitable, well-established firm. A franchisor promotes and sells franchises to potential franchisees.
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