If you’re considering franchise investment and are still in the initial research stages, you’ll no doubt have come across all kinds of industry terms, one of the most important being franchisor. But just what role does a franchisor play, and what do they actually do?
What is a Franchisor?
A franchisor is a company or person that gives third-party individuals, known as franchisees, the right to operate under their branding, trademarks and operational models.
While franchisees own the individual franchise businesses, they are subject to the authority of the franchisor and must adhere to the conditions set out in the franchise agreement. The franchisor is compensated for the use of their branding, systems and expertise via a franchise fee and ongoing royalty payments paid by the franchisee.
What is the Difference Between a Franchisee and Franchisor?
In simple terms, the franchisor is essentially the parent company that oversees the use of its brand by franchisees. As an example, Esquires Coffee is the franchisor, and the individuals who own and run our different coffee shop locations are franchisees.
The franchisor is responsible for the brand’s broader image and growth strategy, providing franchisees with a profitable model to buy into, while the franchisee is responsible for the day-to-day operations and success of the individual business.
The franchise business model thrives on this mutually beneficial relationship where one party's success is heavily tied to the success of the other.
What are the Responsibilities of a Franchisor?
Investing in a franchise is often touted as offering higher rates of success than starting a business from scratch. It is the ability to work with a franchisor that makes this true.
The franchisor is responsible for anything to do with how the wider franchise runs. They will provide franchisees with a proven business model, systems, services and products – essentially anything that is required to create a franchise business that reflects the identity and values of the franchisor. The franchisor is also in charge of updating systems or products to respond to industry trends.
Essentially, one of the key roles of the franchisor is to support its franchisees with a strong foundation, while providing ongoing guidance for long-term success.
Improving the reach and reputation of the brand is also a key responsibility for franchisors; they must regularly recruit suitable franchisees to continue building the company’s potential and increase profit at the corporate level.
To break it down, a franchisor’s responsibilities include:
- Maintaining the brand’s standards
- Upholding franchise-wide consistency
- Investing in innovation and development
- Recruiting franchisees
- Providing ongoing training and market expertise
- Implementing marketing and advertising campaigns for the brand
The franchisee’s responsibilities work in line with these but are slightly different.
What Does a Franchisor Provide?
Once a prospective franchisee has been approved, the franchise agreement signed and the initial fee paid, the franchisor will get to work setting up the new franchise.
What exactly is provided will depend on the specific franchisor and industry, but as a general idea, you might expect a franchisor to provide help with:
- Location selection
- Lease negotiations
- Vendors and supply chain access
- Equipment fit-out
- Store design
- Inventory and stock
- Franchisee and staff training
- Admin support
- Marketing campaigns
- Ongoing support
Can a Franchisor Terminate a Franchise Agreement?
Yes, the franchisor may have the right to terminate the agreement if a breach of contract has occurred. This will usually be in rare cases if, for example, the franchisee does not make the correct royalty payments, fails to meet the brand’s standards or damages the reputation of the brand.
The franchise agreement aims to protect both parties, so the legal expectations for both franchisor and franchisee will be clearly stated to mitigate the chance of franchise termination.
How Do Franchisors Make Money?
We’ve already touched on this somewhat, but the franchisor makes money from a series of fees paid by the franchisee in return for the ability to operate under the franchisor’s name.
This includes the franchise fee, which is an upfront fee franchisees must pay before they can launch their franchise business, along with royalty fees, which are ongoing payments usually calculated as a percentage of the franchisee’s gross sales.
Other revenue streams for the franchisor may include franchise renewal fees, additional marketing fees and product sales if they are the exclusive supplier to their franchisees.
Choosing the Right Franchisor
You will be able to find franchise opportunities in nearly every industry, but narrowing down your choice of franchisor can be tricky. If you’re serious about investing in a franchise, thorough franchise research is essential.
This process will help you get better acquainted with the franchise business model so you can spot the good from the bad. The ‘right’ franchisor for you will come down to several factors, including whether they fit the niche you want to work within and share your values.
However, no matter which industry you want to invest in, there are a number of key qualities ‘good’ franchisors share that you should look out for, including a proven history, high levels of transparency, realistic fees, BFA membership and well-documented support programmes. A franchisor without these basic qualities may be too good to be true, especially if they are promising suspiciously low initial investment, so make sure to do your due diligence!
If you’re interested in buying a coffee franchise, Esquires might just be the franchise for you. To kick off your research and find out more about how we do things, see our brand brochure below.
