Franchisor definition
/What is a Franchisor?
A franchisor is a party that grants the use of its business model, products, and trademarked name to franchisees. The franchisor owns the underlying business model and the legal rights to its trademark and products. The franchisor is paid an up-front fee as well as a percentage of franchisee sales. The franchisor is also responsible for maintaining the quality of the products and services rendered by its franchisees, and manages regional and national advertising on their behalf.
Characteristics of a Franchisor
The key characteristics of a franchisor are as follows:
Established brand. The franchisor owns a recognizable and well-established brand name.
Proven business model. The franchisor has a successful and replicable business model with a track record of profitability. Its processes and systems are refined to ensure consistency across franchises.
Owns intellectual property. The franchisor holds trademarks, copyrights, or patents for logos, designs, products, or unique processes.
Franchise agreement. The franchisor defines and enforces the terms and conditions in a legally binding franchise agreement.
Training and support provider. The franchisor provides initial training for franchisees to help them operate the business, as well as ongoing support in areas like marketing, operations, and product development.
Marketing and advertising support. Franchisors often manage national or regional marketing campaigns that are funded by franchise fees.
Operational standardization. Franchisors ensure consistent quality and experience across all franchise locations.
Fees charged. Franchisees pay the franchisor initial franchise fees and ongoing royalties. Additional fees may include marketing fund contributions or technology support charges.
Territory rights. The franchisor determines and grants exclusive or shared territories to franchisees.
Franchise development focus. The franchisor aims to grow its network by recruiting and selecting qualified franchisees.
Brand protection. The franchisor requires franchisees to uphold brand standards to protect the business reputation. It may terminate agreements for violations that harm the brand.
Economies of scale. The franchisor leverages bulk purchasing power to negotiate better deals for products or supplies, and passes on cost savings to franchisees or reinvests in the system.
These characteristics collectively enable a franchisor to maintain control over the brand and ensure a consistent, profitable partnership with franchisees.
Advantages of Franchising
A franchisor may engage in franchising in order to rapidly build out its business model at a reduced level of investment. Instead, franchisees are supplying capital to start up new franchise locations. Also, franchising can allow a franchisor to rapidly gain market share, especially in new markets where there are few other entrants.
Disadvantages of Franchising
There are some disadvantages to franchising. One is that your franchising model may fail, in which case you will be dealing with a large number of annoyed franchisees who may threaten to sue for a return of their up-front fees. It can also be a distraction, since you will need to run franchisee meetings from time to time, to take input from the franchisees. Some franchisees may also run their operations incorrectly or in a fraudulent manner, so you may need to spend time and money to sue them and shut down their operations.