The Relationship Between Franchisees and Franchisors

Franchisees and franchisors should have the same long-term goal – to build a successful business. However, their distinct roles and collaboration are key in creating and maintaining a thriving brand.

Whether you are looking to franchise your business or buy into an existing franchise, it’s important to understand the roles and responsibilities of both the franchisee and franchisor. 

What Does It Mean to be a Franchisee?

A franchisee is an independent entrepreneur who purchases the rights to operate a location or branch of an existing business model within a selected territory. Franchisees are primarily responsible for:

Making the Initial Franchise Investment

The franchisee invests capital to buy the franchise rights and start-up the business, which includes paying the franchise fee and covering initial training.

Day-to-Day Operations

1. Adherence to Brand Standards

Franchisees must maintain the quality and consistency of the brand, following operational procedures set by the franchisor, and typically documented within a Confidential Operations or Brand Standards Manual.

2. Local Marketing

While the franchisor typically handles national or regional marketing, franchisees are often responsible for promoting their location locally, usually at a set minimum expenditure and with franchisor approval of all marketing materials used at the local level.

3. Revenue Generation

The franchisee’s income is primarily derived from the profits generated by their franchise location, after covering expenses and paying royalties to the franchisor.

Roles and Responsibilities of a Franchisor

A franchisor is the entity that holds ownership of the brand and its business framework. The main roles and responsibilities of a franchisor include:

Brand Development

The franchisor is responsible for developing and maintaining the brand image, and ensuring its consistency across all franchise locations.

Franchise System Support

They provide franchisees with comprehensive support, including initial training programs, operational guidelines, and ongoing assistance.

Marketing and Advertising

The franchisor typically manages broad-scale marketing and advertising campaigns to promote the brand as a whole; this is often funded through contributions by franchise and often corporate locations to a brand development or system marketing fund.

Product and Service Innovation

Franchisors continually seek to keep their products or services relevant to the marketplace and to continuously innovate to keep the brand competitive.

Compliance and Quality Control

They ensure that all franchise locations adhere to operating standards and guide them on regulatory requirements, conducting regular site visits, performance audits and providing feedback for improvement.

Collaborating for Mutual Success

The relationship between a franchisee and franchisor is mutually beneficial. Franchisees benefit from the established brand recognition, operational support, and marketing efforts provided by the franchisor. In return, franchisors benefit by expanding their brand presence and revenue streams through the franchisee’s investment and commitment to maintaining brand standards. The result of a successful franchise system is a network of locations that provide a reliably consistent, quality product or service to the public. 

All-in-all, the end goal is for both parties to create a “win-win-win” situation: for franchisees, the franchisor, as well as the consumer.