The concept of franchisee and franchisor has become very popular in many countries of the world. This is a business model where a company gives the rights of stocking and selling the products made by it to a person who does business on behalf of the company and in return gets a decent commission on sales. It is common to see signboards of popular companies in different locations. Most of these are examples of this franchise system, and the shining example world over is that of MacDonald, a fast food chain of restaurants seen in most parts of the world. If you want to become a franchisee of a company, it is better to understand the differences in the roles and responsibilities of a franchisee and a franchisor so as to carry forward the business successfully and also to avoid any disputes because of misunderstanding.
Franchisor
A franchisor is the owner of the company who has successfully established the brand or the company in the market. A franchisor provides important inputs such as technical knowhow, the right to use trademarks and logos of the company, a business model that is effective and proven, and the products or services for which the company is so well known. A franchisor is also expected to provide all training and support in the initial part of the set up, and a continuing support to deal with any problems that may arise during the day to day operations. A franchisor is entitled to an upfront fee in return for the rights to make use of products and trademarks. In addition, he is entitled to a commission or a royalty fee on all future sales generated by the franchisee.
Franchisee
A franchisee is the person who purchases the rights to make use of the trademark, logos, and the products or services of the franchisor. He gets the benefit of an already famous product or service for which there is an existing customer base, and he does not have to work hard to get customers to make sales. Yes, he has to share the profits with the franchisor, but this is a small fee to reap all the rewards of a proven business model. Though a franchisee is expected to follow the rules and regulations as mentioned in the agreement signed by him, he is the owner and independent, as the success and failure of the business is dependent upon his own abilities as has been seen in many instances in the past. In fact, the ability to implement the business model successfully ensures the success of the franchisee. As a franchisee, you are expected to arrange the capital required to start the business as also the retail premise that is required to entertain the customers. Although the knowhow and the products come from the franchisor, a franchisee must have entrepreneurial acumen to succeed in this business model.
What is the difference between Franchisor and Franchisee?
• Franchisor provides the rights to make use of an established business, in addition to the trademark and logos of the company. He also provides the initial training and the knowhow to run the business.
• On the other hand, a franchisor coughs up the capital in return for products and trademarks from the franchisor. He is also expected to follow the terms and conditions set by the franchisor. However, a franchisor is the master in his business, and he has to hire and fire the employees as he deems fit. His business skills and entrepreneurial abilities decide the long run success of the business.