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In the franchise system, there are two roles: franchisee and franchisor. The two work together to create and expand a successful business concept. So what role does each play in relation to the other?

The Franchisor

The Franchisor has built a successful business system and is willing to sell you the right to use that system, and all that goes with it, to begin your own business. An important distinction is that the franchisor is not selling you a business—he/she is selling you a right to operate a business using an established system.

The goal of the franchisor is the same as any other business owner—to increase the value of their business. In the franchise arena, this is accomplished by selling the right to use their business model so that there are more franchise locations doing business successfully. In this way they expand their market reach, increase the value of the franchise, and the brand as a whole grows. As the number of successful units grows, the franchisor’s royalty stream (the percentage of profits they get from each unit) also grows.

It is in the franchisor’s best interest to continue to support you as you exercise this right to do business. Some of the things you can expect from a franchisor are:
  • Professional national marketing and advertising materials and campaigns: they are still the captain of the fleet and will manage the overall strategy of the brand.
  • Management of products and services for the brand as a whole, including research and development of new products and services. A proven system of doing business.
  • Protected territory from other in-brand units: in other words, they will manage how close your market area is to another unit so there are both enough stores to have good market penetration, and also enough territory for each store to generate the business they each need to operate successfully.
  • Opportunities to own more than one unit.
  • A network of colleagues.
  • Frequently, a buying cooperative—that is, a group of people who together have more buying power and ability to negotiate prices than does a single business owner.

The Franchisee
The Franchisee is ready to start a new business, but may not have enough experience in running a business to be comfortable starting one from scratch. Most new businesses have a fairly high failure rate—sometimes due to mistakes made by inexperienced business owners, other times due to unexpected conditions in the market. What the Franchisee is looking for is a leg-up in starting a business so they have an increased chance of success. This is exactly what purchasing the right to use an existing business system and brand name provides them.

What you need to keep in mind is that this is your business, but someone else’s brand. It’s your responsibility to find and negotiate your lease or building, but the Franchisor will usually provide guidance. You are responsible for hiring and training all employees, but again, the Franchisor can provide helpful tips for recruiting and employee development. You manage all of the pieces of the business yourself, tapping into the expertise of those from whom you’ve purchased this system whenever you need advice. You can also expect the franchise to provide training in the methods of running your business according to the system they licensed to you.

What is important for you as the Franchisee to understand from the beginning is that while you are part of an entire franchise system and will work as a partnership, you are not actually a partner. This doesn’t mean that you have no say in how the business is run, but it does mean that your say is limited. In more established franchises, there is usually a franchise group that represents the franchisees’ interests and works with the franchisor to present ideas and resolve business issues to the benefit of the franchise as a whole.

If not quite a partner, the franchisee still can expect from the franchise those things outlined above. So what can the franchisor expect from you?
  • Well…money, of course. You can think of it as leasing their ideas. Each month you will report on your financials and a certain percentage of the profit you make goes to the franchisor. They use this money to fund things like advertising campaigns and research and development of new products, and to grow the value of the brand.
  • You to run your business according to their standards regarding products and services. Consistency from store to store is what brings customers into franchise businesses. A customer should expect to get the same product or service from that brand name regardless of which building they walk into. If you don’t, other units suffer.

It’s important to note that the services listed above are somewhat standard to all franchise systems, but the extent to which they are applied varies greatly. Your Franchise Agreement will explicitly state the levels of support you will get in terms of advertising, training, and other areas. If it isn’t in writing (in your Franchise Agreement) then it’s not required. Keep this in mind during your conversations with any franchise organization.

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