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The Differences Between Franchisor and Franchisee

"Franchisors" offer and sell franchise opportunities to prospective "franchisees". A Franchisor, pursuant to an FDD, offers and sells franchises whereby a franchisee is granted the right and obligation to establish a franchised location using the franchisor's systems, know-how and licensed marks. A Franchisee, through a franchise agreement, is granted the right and obligation to establish and operate a franchised location. Franchisees typically pay franchisors a one-time upfront franchise fee and ongoing royalty fees.

Below learn more about the role of the franchisor, the role of the franchisee and the differences between franchisors and franchisees.

Franchisor vs Franchisee

What Is the Role of a Franchisor?

The franchisor is typically an entrepreneur who has laid the groundwork to create a successful, established business. He or she brings the following valuable assets to the franchisor/franchisee relationship:

  • A Proven Business Model – In order to become a franchisor, you must have reached a point in which your business model irrefutably works. Consumers recognize your brand and seek out your products or services.
  • A Recognized TrademarkRegistered trademarks are among the most valuable assets that a franchisor has acquired through careful research as well as trial and error. Establishing a recognized trademark and securing the federal rights to that mark often requires a great deal of time and dedication.
  • Established Business Systems – The franchisor has developed a system of conducting business that produces reliable results. From working with customers and clients to delivering products services, the franchisor has an established business model that franchisees will follow.
  • Training and Support – One of the most important contributions that the franchisor provides is extensive training and on-going support. With the guidance of an experienced entrepreneur, the franchisees learn from someone with proven success.

What Is the Role of a Franchisee?

Essentially, a franchisee's role is to duplicate the franchisor's successful business model in order to help it expand into a regional or national market. It is not a passive role, by any means, and requires significant investment and work, including:

  • Paying Franchise Fees – Franchisees are required to pay a franchise fee in order to obtain the right to establish a franchised business location as well as a percentage of gross revenues and a fee for advertising costs.
  • Management of Franchise Location – Franchisees take the franchisor's business systems, training and know-how and put it into practice in their location. Franchisees essentially have a framework for making their franchise location a success, but control the day-to-day operations independently.

Before starting a franchise or purchasing a franchise, it is critical to understand the role of both parties in the franchise system. To learn more about franchising, contact the Internicola Law Firm, P.C. today.

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Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

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