The Duties and Definition of a Franchisee
A franchisee is a person or company that is granted a license to do business under the franchisor's trademark, trade name, and business model, by the franchisor. The franchisee purchases a franchise from the franchisor. The franchisee must follow certain rules and guidelines already established by the franchisor, and in most cases, the franchisee must pay an ongoing franchise royalty fee to the franchisor.
Franchising is a system for expanding a business and distributing goods and services to meet higher consumer demand. It’s based on a relationship between the brand owner and the local operator to skillfully and successfully extend one’s established business system. As a condition of obtaining or commencing operation of the franchise, the franchisee makes a required payment or commits to make a required payment to the franchisor or its affiliate.
From a business perspective, a franchise is a contractual relationship between a licensor and a licensee for the licensee to use the licensor’s method of doing business to distribute products or services using the franchisor’s trade or service mark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor’s trademark. While every franchise is a license, not every license is a franchise under the law.
Role of the Franchisee
A franchisee has four major responsibilities for the success of the system in which they are granted a franchise:
- To protect the franchised brand by operating the franchise in strict compliance with system operating standards.
- To build a strong and loyal customer base by offering only approved products and services and by providing superior customer service.
- To ensure that all employees are properly trained and the franchise is properly staffed at all times.
- To advertise and promote the franchise and its approved products and services according to the guidelines provided by the franchisor.
Attributes of a Successful Franchisee
- Be willing and able to learn new skills. As the operating manager of a franchise, you will take on a multitude of roles, from a trainer to watchdog to customer service to financial advisor. The franchisor sets the brand standards, but they are not responsible for how the franchisee's day-to-day business is run. It is a steep learning curve, but if you can master these new skills, you can become a successful franchisee.
- Be able and willing to follow system standards. As a franchisee, you are chiefly agreeing to follow someone else’s operating system, often including specific requirements for what marketing materials to use, what suppliers you must work with, and what specific products or services you must offer.
This, along with the licensing rights and restrictions on how you can use the franchisor’s intellectual property, is what you are investing in. In exchange for this ready-made operating system, a franchisee has to report their sales and expenses, follow instructions on how to present the products and services, and comply with the franchisor’s advertising requirements. Every day, week, month, and year, the franchisee will be following protocols set up by the franchisor. If the franchisee fails to meet those brand standards, they risk being in breach of their franchise agreement.
- Be ready to move from big business to small business. The former corporate middle manager who wants to be a franchisee has a broad understanding of business, knows how to work within a system, knows how to motivate staff, and certainly is no stranger to long hours. But a franchisee is essentially a small business owner, which means leaving behind the internal support services they have grown accustomed to, as well as the many benefits that come with employment at a larger company, such as retirement plans and paid sick days, expense accounts, and health insurance plans.
As a franchisee, your success is measured each day in your franchise's performance, requiring more self-reliance than many corporate managers have had to demonstrate. However, a well-structured franchised system will provide a level of support that contributes to the franchise's success.