What is the difference between a franchisor and franchisee?
The franchise has helped to shape the modern business landscape. Without franchises, there wouldn’t be McDonalds, Subway, Pizza Hut, KFC, Europcar or Burger King and high streets in our towns and cities would look very different. The franchise model has enabled these companies to expand quickly and efficiently, allowing them to take full advantage of gaps in the market and meet growing customer demand.
By minimising financial risk for the original business and giving entrepreneurs a clear path to success, the franchise model has helped thousands of new ventures to grow and thrive. However, the business model wouldn’t be anything without the skilled, innovative and determined entrepreneurs who work hard to make their business goals a reality.
Both franchisors and franchisees are integral to the success of their ventures and the business concept as a whole. Understanding the roles that these two sides play in the development and day-to-day running of the franchise can help franchisors, franchisees and the general public to get a better idea of the contribution these entrepreneurs make to the national and international economy.
Who is a franchisor?
The franchisor is the person or company that ultimately owns the rights to the business. Generally the founder of the enterprise, the franchisor has often put significant amounts of both time and money into building the venture from the bottom up. When they become a franchisor, the individual or business will grant a license to a third party to enable them to conduct a business under the franchise’s trademarks. Although the franchisee will have the right to use the trade name of the business, its logos, marketing materials and systems, the franchisor will still retain the trademarks and overall rights to the business.
In general, the franchisor will charge the franchisee an up-front fee for the right to use their business name, operating systems, marketing materials and other services. Often, the franchisee will also pay an annual royalty to the franchisor for the continuing rights to the business.
In the last four years alone, the number of franchises in the UK has grown by an impressive 10%. Franchises now contribute around £15 billion to the country’s economy and they employ a staggering 621,000 people throughout the UK. Around the world, the contributions that franchisors have made to the global economy have created countless jobs and helped to drive innovation and success across a wide range of industries.
What are the responsibilities of the franchisor?
One of the key responsibilities of the franchisor is to find capable, qualified and committed franchisees. Without the right people, even the most promising franchise will struggle to thrive. A thorough application process will help franchisors to find entrepreneurs who really want to succeed and who are dedicated to making the business work.
The franchisor is also in charge of ensuring the franchise’s standards and values are maintained across all franchised branches. This is an incredibly important responsibility as consistently high standards are integral to the success of both new and established franchises. Working with franchisees to maintain the high standards of the brand also helps to protect and enhance the reputation of the franchise, something that can help the business as it continues to expand and attract increasing numbers of customers.
Franchisors need to provide their franchisees with on-going training in all relevant areas of business. It’s also important for franchisors to ensure that franchisees understand their role within the company and have the support they need to offer their customers the best service possible. When necessary, the franchisor should introduce new operating systems, products and services in order to ensure the franchise continues to meet changing customer demands.
Marketing materials, merchandising standards and advertising campaigns are also generally managed by the franchisor. This ensures consistency across marketing and advertising campaigns and helps the franchise to create a unified and cohesive brand message and identity.
Who is a franchisee?
One of the main reasons that entrepreneurs use the franchise model to expand their business is that it brings in investment and talent. Franchisees invest their own money, time and expertise into the business, giving the franchise the necessary capital and manpower required to grow.
The amount that franchisees have to invest can vary significantly between businesses. While some franchise opportunities require an investment of less than £15,000, others ask franchisees to put millions of pounds into the business. The money that franchisees invest should be used by the franchisor to enhance and grow the business. The more money businesses can bring in through franchising, the more capital they’ll have for their future growth.
The franchisee will also be expected to put a significant amount of time in to help their business to grow. Although the franchise model gives entrepreneurs a head start in terms of marketing, brand awareness and product development, franchisees will still need to work hard to turn their venture into a real success. According to research from the BFA, 92% of franchisees report their business as being profitable. However, they won’t achieve this success without putting time and effort into the business.
Aside from time and money, the most important thing that a franchisee will contribute to the relationship is their expertise. Unlike the traditional employee, franchisees need to take the initiative in growing the business and use their skill, experience and knowhow to drive growth and innovation. Franchisees are expected to work independently from the franchisor and to provide leadership to their employees and a high level of service to their customers.
An important aspect of the franchisee’s role is protecting the reputation and brand image of the franchise. They’ll need to ensure that their staff are able to offer the required level of service and that their marketing materials, promotions and campaigns complement the franchise’s branding and corporate message.
The importance of the relationship between the franchisor and franchisee
The relationship between the franchisor and franchisee is crucial to the success of the business. The franchisor needs to ensure that the franchisee knows exactly what’s expected of them at every stage during the relationship and also needs to work to provide the franchisee with the support, training and materials they need to succeed.
Clear lines of communication need to be open between franchisor and franchisee if this relationship is going to be optimised. Regular meetings and opportunities for feedback will help franchisees to feel valued and help to prevent serious issues from developing between the franchisor and the franchisee.
Often, the more valued franchisees feel, the harder they work and the more profitable their ventures are. Without adequate training and support, franchisees can easily feel abandoned or exploited by the corporate arm of a business, two things that won’t help to make the franchisee/franchisor relationship productive or fruitful. Much of the responsibility for creating a strong relationship rests with the franchisor, however franchisees also need to ensure they contribute time and energy to the business if they want to be valued, trusted and looked after by the brand.
Turning a business into a franchise is an effective way of growing an enterprise and finding new business talent. Becoming a franchisee is a great opportunity for forward-thinking entrepreneurs who want to develop their business quickly. To find out more about franchises or franchise advice on what it takes to become a franchisee, explore the information on our site today.