What Is a Franchisee?

Definition & Examples of a Franchisee

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A franchisee is a person or company that is granted a license to do business under a franchisor's trademark, trade name, and business model in a certain area.

Learn more about what franchisees are and how they work.

What Is a Franchisee?

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 an already established business system.

Franchisees are small business owners who operate franchises, or businesses granted the rights to use the licensor’s method of doing business and trademark to offer, sell, or distribute goods, services, or commodities.

A franchise is also a contractual relationship between a licensor (the franchisor) and a licensee (the franchisee). While every franchise is a license, not every license is a franchise under the law.

How a Franchisee Works

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.

A franchisee has four major responsibilities for the success of the system in which they are granted a franchise:

  1. To protect the franchised brand by operating the business in strict compliance with system operating standards
  2. To build a strong and loyal customer base by offering only approved products and services and by providing superior customer service
  3. To ensure that all employees are properly trained and the franchise is properly staffed at all times
  4. 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

Franchisees generally need the following attributes to be successful:

Willingness Learning New Skills

As the operating manager of a franchise, you will take on a multitude of roles, from trainer to watchdog to customer service provider 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.

Ability 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.

Understanding of 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, 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.

Key Takeaways

  • A franchisee is a small business owner with a license to operate under a franchisor's trademark, trade name, and business model.
  • Franchisees must follow certain rules and guidelines already established by the franchisor.
  • In most cases, franchisees must pay an ongoing franchise royalty fee to the franchisor.
  • Successful franchisees must wear many hats, be able to follow guidelines, and have an understanding of small business.