Summary Definition: An established company that grants others the rights to sell products or services using its name, brand, and intellectual property.
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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These two, often confused, terms reference the two parties in a franchise relationship:
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.
The franchisor role can vary depending on the business model and individual franchise agreement. However, some common responsibilities include:
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.
Franchisors exist in most industries, from food and hospitality to health and wellness:
Not every business can or should become a franchise, as doing so has various entry-level requirements:
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