What’s The Difference Between A Franchisor And A Franchisee?

If you’re thinking of starting a business and have considered that a franchise may be for you, you’ll want to get clued up on the differences between franchisors and franchisees. Your local McDonald’s or Dunkin’ Donuts is probably not a corporate money-maker like some may think, but is most likely just a small business (franchise) owned by a local individual(s) (franchisee). The individual(s) who owns this small business is allowed to use the McDonald’s or Dunkin’ Donuts brand name because they allowed it, making the McDonald’s and Dunkin’ Donuts franchisors in this situation. Both groups must work together to build a successful business, but what else sets them apart? Read on to find out.

What Is The Role Of A Franchisor?

A franchisor is a person (or corporation) who grants a franchisee the right to operate a certain business under the franchise system’s trademarks; the franchisor enforces the brand standards of the system. Great franchisors will help to provide training to new franchisees and their staff so that the business succeeds.

In broader terms, the franchisor is an entrepreneur. They are more of an “idea” person who has a vision, mission, and belief, and by starting the brand itself took more inherently more risk than most of their franchisees.

What Fees Does A Franchisor Pay?

When getting set up, the initial franchise fee is used to pay for a number of things. This is why the franchisor may make a loss in the beginning. The fee may go towards:

Training Fees
Recruitment Costs
Legal Costs
Document Writing & Consultation
Additional Website Development
Marketing Plan Development
Additional Support Systems/Personnel
Technology Implementation

How Does A Franchisor Make Money?

A franchisor does not make money from the initial sale of the franchise. They make the most money from a flat rate or a percentage of the franchisee’s profits, commonly known as a royalty, which is laid out in the contract beforehand.

What Is The Role of A Franchisee?

A franchisee is a person or company that is granted a license to do business under the franchisor’s trademark, trade name, and business model. A franchisee is not considered an ideal person, but a person who likes to follow established rules and systems. They do want to be a business owner but would rather not take on the risk of starting one from scratch.

What Fees Does A Franchisee Pay?

As well as the initial fee to buy the business, the franchisee will need to pay a royalty fee. This is an ongoing fee that the franchisor uses to support its existing franchisees and maintain and grow the franchise system. The amount that the franchisee will be expected to pay will be laid out in the contract beforehand, and it varies from industry to industry.

How Does A Franchisee Make Money?

A franchisee makes money by running the business the way it was intended and ensuring they stick to the franchisor’s vision and take criticism. This way, the business will stay true to the brand vision and people will be more likely to trust it. For example, a franchisee will be able to keep a portion of sales that they make, whether they are selling burgers, donuts, gym memberships, etc.

How A Franchise Looks In Action

Usually, somebody will decide they want to own a business and they have some startup capital to spare. They will consider what they are good at and interested in, do some research, and come across a number of options. A startup is possible but is hardly secure. A franchise that has already been established poses a much safer alternative providing it is run properly.

If somebody is interested in nutrition and cooking healthy meals, for instance, they would likely become discouraged upon reading how difficult it is to get started in the food sector. However, there are many successful franchise opportunities based around food and healthy meals. These franchises will provide training, marketing, advertising, support, and more. To somebody who wants to pay money and have a ready built, turnkey business that they can focus on making money right away, this is a dream come true. Providing the franchise is reputable, within a few months the budding business owner could have an operation up and running.

What Are The Primary Differences Between A Franchisor And A Franchisee?

There are many differences between a franchisor and franchisee. While a franchisor is usually an entrepreneur, a franchisee is more of a manager. A franchisor must be comfortable with uncertainty, while the franchisee prefers security. A franchisee can easily implement tasks, but they don’t like to initiate like the franchisor, who is a visionary. A franchisor will usually be great at sales and marketing, while a franchisee prefers to be given the opportunity to carry out the company vision.

Comfortable with uncertainty
Is a visionary
Views challenges as opportunities
Great at sales and marketing

Prefers security
Likes implementing tasks
Prefers being given opportunities with lower risk