Franchisor vs. Franchisee: What’s The Difference?


Your Guide to Franchise Ownership

There is an estimated 775,000 franchise establishments in the U.S., and that number continues to grow. Why? Because the franchise model works! By leveraging a proven system, support and training, you can step right into a franchise business much more seamlessly than starting from scratch. But you have to do your due diligence... and that's where the IFPG Franchise Buyer's Guide comes in.

By arming yourself with knowledge and information, you can be well on the way to a new path as a franchise business owner. We have you covered every step of the way!

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Franchisors and Franchisees Rely on Each Other for Success

What is the difference between a franchisor vs. franchisee? At the most basic level, the franchisee invests in the franchise, while the franchisor provides the working system, training manuals, and support to the franchisee in order to get products and services to the public.

They rely upon each other in order to form a successful business. The ideal franchisee-franchisor relationship includes collaboration, being community-driven, and having a growth mindset. Their relationship should go beyond just business and grow into a family-like unit with care on both sides. Both the franchisor and franchisee have different responsibilities. 

Franchisor Responsibilities 

Set Up a Proven Business Model

For any franchise to succeed, the franchisor must provide the franchisee with the proper training manuals, logos and branding, website, social media, operating system, and whatever else is necessary to make the business run. The franchisee must follow these instructions in order to ensure maximum efficiency and success.

Provide the Franchise Disclosure Document (FDD)

The FDD is a legal document that contains 23 sections with information about the franchise, any fees that will be charged, and information about the legal relationship between the franchisee and franchisor. Franchisors must give prospective franchise owners this document at least 14 days before they invest in the franchise.

Training and Ongoing Support

To ensure a smoothly run franchise business, all staff members must be trained to know how to make sure it operates properly. Franchisors provide initial training at their corporate headquarters before the grand opening of a location. Franchisees must follow the instructions provided to them by the franchisor and train their employees accordingly.

Establish Branding and the Trademark

The franchisor is responsible for creating the look and feel for the brand, which includes the logo, colors and corporate identity.

Identify and Establish Exclusive Suppliers/Proprietary Materials

What makes a brand its own is the exclusivity of its suppliers and products. No other company distributes 7-Eleven coffee and products besides 7-Eleven. That’s what makes the brand special. To make the brand stand out from the rest, the franchisor works with suppliers to create proprietary products and services.

Provide Leadership, Especially During Times of Crisis

If the COVID-19 pandemic has taught us anything, it is that a crisis can strike at any time. It is the responsibility of a good franchisor to be present and support franchisees during times of crisis.

Brand and Market on a National Level

If nobody hears about the business, nobody will patronize it. This is where social media and marketing come in. The franchisor is responsible for branding and marketing on a national level and providing marketing materials and campaigns to the franchisee to promote the business locally.

Create a Corporate Culture

A friendly and open corporate working environment is essential in any franchise system. To form this working environment, the franchisor can host annual conferences, provide opportunities to bring franchisees together, and more. This will make franchisees feel welcomed and a part of a “franchise family.”

Have Various Financial Responsibilities

Franchisors have many financial responsibilities when it comes to the franchise business. Franchisors are responsible for collecting franchise fees from the franchise owners in the system. These funds are used to grow the franchise business. Training, marketing tools, and other startup costs are covered by the total franchise cost, which is one of the benefits of owning a franchise.

Be an Effective Communicator

If there are changes to any part of the franchise business, such as a different product line up, or just a standard meeting, the franchisor will communicate that information to the franchisees in the system.   

Franchisee Responsibilities

Follow the Proven System

A mistake that franchisees make is not following the franchisor’s proven system. It wouldn’t make sense for Planet Fitness to offer massages at one location and pasta at another, for example. Franchisees must stick to what the franchise is meant to do.

Be an Ambassador for the Brand and Uphold its Reputation

The reputation of a brand is only as good as the franchisees who operate under its name. If a brand is known for a low-quality product and bad service, then nobody will want to go to that business. One wayward franchisee can create a bad reputation system-wide.

Find, Build and Lease a Location

Location is critical for the success of any business. A franchisee should do market research to see if there is demand for the business and find a territory where that demand is greatest.

Pay Royalty Fees

Owning a franchise can be a huge investment financially. A franchisee has to pay a significant franchise fee and ongoing royalties in order to have the rights to operate the franchise.

Hire, Lead and Manage a Team and Ensuring They Follow a System

Leadership is critical to the success of any franchise. Employees must be trained in the franchisor’s operating system to ensure continuity. A brand is known for its similarities in all locations and franchisees need to uphold that continuity.

Advertise and Market the Business Locally

Word of mouth is one of the most effective tools at the disposal of a franchisee. If customers don’t come, the business fails. The franchise has to reach out to the community to ensure the business has regular customers that keep coming back for more.

Manage the Success and Growth of the Business

Franchisees are responsible for the daily operations of the business. The franchisee must keep financial records, hire staff, order inventory, and ensure the function of the day-to-day and long-term success of the business.

Financially Support the Business

The franchisee is responsible for providing the capital to buy and run the business. They have a vested interest in seeing the business grow and succeed. Many franchisees put their entire life’s savings into the business.

Communicate with Other Franchise Owners

One of the benefits of owning a franchise is that you can communicate with your franchisor and other franchise owners in the system whenever you need to. A great way to meet with other franchisees to discuss the best practices in the industry is to attend annual retreats and conferences. During these events, franchisees, franchisors, consultants and vendors can meet in a casual environment to discuss trends in the industry and how to make the franchise business even better. 

It will benefit all franchise owners to attend these events because they will be up to date on what’s going on in the industry, which will help them run the franchise business better. 

Be Involved in the Community

Being a franchise owner is more than just running a business. To make your franchise business stand out from the rest, you have to actively be part of the community. While it is important to produce a great product and be known for quality customer service, giving back to the community is worth more than any sale. For example, if you run a child-related educational franchise business, you can donate a portion of your sales to charities that raise funds for hungry or disadvantaged children. As a franchise owner, you can make a decent living and do good things for the community at the same time.

Knowing the difference between franchisee v. franchisor is important for all entrepreneurs who want to open a franchise to know. They have different roles and responsibilities but need each other in order for the franchise business to succeed. This relationship is one of the benefits of owning a franchise in the first place. Entrepreneurs who start a business from scratch do not have the benefit of having corporate support and a number to call when they need assistance. 

An entrepreneur who wants to open a franchise must strive to have a great relationship with their franchisor and other franchise owners in the system.  

Working with Franchise Consultants

As an entrepreneur who wants to open a franchise, you will want to work with a franchise consultant who will connect you with franchisors. These professionals will work with you to find the ideal franchise business based on your financial background, skills, background, and more. At no cost to you, the franchise consultant will give you guidance on your journey to owning a franchise business and make the process as simple and straightforward as possible. These constants are knowledgeable on everything from franchise cost to the FDD, so taking advantage of their services will only benefit you as a prospective franchise business owner.

But a franchise consultant wears another hat while working with franchisors. Similar to real estate brokers, these consultants are intermediaries between buyers and sellers of a franchise business. When working with franchisors, consultants make the discovery process easier by only recommending candidates who are serious about owning a franchise. This will save franchisors time and money when looking for quality entrepreneurs who want to open a franchise. Working with a franchise consultant is beneficial to both franchisors and prospective franchise owners.

Franchisor vs. Franchisee: What’s The Difference?

Franchisors and franchisees have different roles and responsibilities. Franchisors set up a proven business model, provide the FDD, training and support, create a corporate culture, and more. Franchisees have to follow the system, be an ambassador for the brand, pay ongoing royalties, locally advertise the business, communicate with others in the system, and be involved in the community, which is a benefit of franchise ownership. Franchisors and franchisees also benefit from working with franchise consultants. Since 22% of business startups fail in the first year, speaking with a professional before leaping into franchise ownership can help you from making a costly mistake.

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