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Franchisee vs. Franchisor: The Different Roles in a Franchise

Examine the key differences between a franchisee and a franchisor, and what you should know about the two.

By Jeff DwyerStaff Writer
7:07AM 03/27/23

For individuals who are brand new to franchising, there’s a lot that can be confusing at first. If you’re new to the industry or are looking to branch into franchising, we here at 1851 Franchise want to help.

Before getting into this industry, one of the first things to learn is what a franchisee and a franchisor are, what they do and how they’re different from one another.

What Are a Franchisee and a Franchisor?

In the simplest terms, the main difference between a franchisee and a franchisor is that a franchisor owns a licensed business model and a franchisee pays the franchisor to use their business model.

The franchisee is an investor who pays for the rights to use the trademarks and business model and practices of an already established brand. The franchisee will pay a number of fees and agree to follow specific guidelines and procedures created by the brand, and they will ultimately be responsible for the day-to-day operations of the business.

The franchisor is any company that sells the rights to a franchise. The franchisor is responsible for providing the branding, marketing and support for franchise locations. In many cases, the franchisee can also provide training for its new operators before they open their business.

Under an agreement between the two parties, the franchisee is expected to make ongoing royalty payments to the franchisor based on gross profits and sales. In turn, the franchisee will be given support from the franchisor in order to run a successful business.

Breaking It Down

For example, McDonald’s is a franchise fast-casual burger concept. If you wanted to open your own McDonald’s, you would contact the chain’s franchising team. You would be required to provide some information about yourself. And if they thought you were a good fit, you would then pay an initial franchise fee and other upfront investment requirements. Once you’ve signed with McDonald’s and have gone through their process, you would open your own McDonald’s location and would be responsible for ensuring it’s running smoothly on a day-to-day basis. In this case, McDonald’s is the franchisor and you would be the franchisee.

Of course, there are a variety of benefits and risks to becoming either a franchisee or a franchisor, and it’s important to know the differences between the two. For those who aren’t looking to start a business from scratch, becoming a franchisee can be very appealing because they’re able to leverage a franchise that’s already successful and will allow them to build wealth. However, unlike if you were to start your own independent business, franchisees will not have complete control over their business. At the end of the day, the franchisors will be in control of everything from the services and products that are offered to the way the franchise locations operate.

In Conclusion

Both the franchisee and franchisor play an important role in growing a business, and both rely on each other in a number of different ways. Before deciding on whether or not you should become a franchisee, remember it’s a big life decision and commitment. It should not be taken lightly.

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