Summary Definition: An established company that grants others the rights to sell products or services using its name, brand, and intellectual property.

What is a Franchisor?

A franchisor is an individual or company that sells or grants the right to operate in its name. It'll often be an established business with a recognizable brand identity. Other parties, known as franchisees, then use the franchisor’s name, business expertise, and intellectual property (e.g., logos or marketing materials) to sell products or services.

Franchisors can leverage the local expertise of a franchisee to expand into new areas more quickly and efficiently, as the franchisee will be responsible for the day-to-day operations of the individual business.

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Key Takeaways

  • A franchisor is a business that grants others the rights to sell products or services in its name.
  • Becoming a franchisor allows a business to expand into new markets with less investment.
  • Franchisor responsibilities often include mentoring their franchisees.

Franchisor vs. Franchisee 

These two, often confused, terms reference the two parties in a franchise relationship:

  • A franchisor is an established business that offers franchisees a chance to sell products or services under its name. 
  • A franchisee is a local establishment that holds the rights to operate a business under the franchisor’s name. 

The franchisee is responsible for most of the on-site business tasks (e.g., hiring employees and managing finances), but it benefits from having access to the franchisor’s suppliers and marketing material.

Simply put, the franchisor can be thought of as the mentor or "parent" of the franchisee.

What Does a Franchisor Do?

The franchisor role can vary depending on the business model and individual franchise agreement. However, some common responsibilities include:

  • Providing a brand name for selling goods and services
  • Providing training on how to perform day-to-day operations and grow the business
  • Sharing access to an approved list of vendors and suppliers for equipment and materials
  • Allowing access to marketing materials that align with the brand
  • Offering franchisees ongoing support for operations, HR compliance, marketing, administration, and more

In other words, a franchisor allows franchisees the opportunity to run a business while avoiding many of the risks (and costs) associated with growing an independent startup.

Additionally, franchisors often assume a mentor role and provide ongoing guidance or support on general business strategies. This could include training on hiring staff, boosting employee engagement, setting up and maintaining equipment, advertising products or services, and sourcing supplies.

In exchange, a franchisor is usually paid an initial startup fee, an annual fee, and a percentage of the franchise’s profits.

Franchisor Benefits

  • Less expensive expansion: Franchising allows businesses to expand without investing as much capital in opening new locations. Instead, franchisees invest their own finances to operate and grow the business.
  • Increased market share: Building a franchise helps a brand increase its presence and secure a larger market share.
  • Local expertise: Franchisees can bring local knowledge, such as customer preferences and cultural insights, to the franchisor’s brand. This can inform marketing efforts and other business activities, leading to a more successful, permanent expansion.
  • Improved talent access: Being a franchisor allows brands to work with individuals who want to run their own businesses and may have otherwise become rivals. By providing a robust employee experience, they can build long-lasting, mutually beneficial relationships with the brightest business people.

Franchisor Examples

Franchisors exist in most industries, from food and hospitality to health and wellness: 

  • McDonald’s: 95% of McDonald’s 40,000+ restaurants worldwide are owned and run by local franchisees. Using the local expertise of their franchisees, the brand has been able to secure a foothold in the global fast-food market ranging from Argentina to Vietnam.
  • Marriott International: One of the most recognized hotel brands worldwide, Marriott’s franchising operation allows it to innovate while maintaining its standards across all locations. 
  • UPS: By establishing The UPS Store, the United Parcel Service allows individuals to operate as franchisees, running local retail branches that offer various shipping, printing, postal, and business service solutions.

How to Become a Franchisor 

Not every business can or should become a franchise, as doing so has various entry-level requirements:

  • A successful business model that can be replicated
  • Sufficient demand for the goods and/or services being sold
  • A series of well-documented operations and processes for franchisees to follow
  • A good understanding of the legal and financial responsibilities involved in being a franchisor, including the local laws and statutes in areas where the expansions occur
  • A strong support system that allows franchisees to hire and train staff, use marketing materials, and effectively perform operations in a brand-approved way

Related Glossary Terms


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