Whether you’re looking to buy a franchise or looking to franchise your business, you’ve likely heard of – or will hear of – the term “franchisor”. There are two primary parties involved with the replication of a business model through business format franchising, these being the franchisor and the franchisee.
Who is a Franchisor?
Simply put, they are the party involved with making the decision to franchise a business and owns the intellectual property of the business being franchised. If you were to start up a business and eventually make the decision to franchise, you would then be one yourself. It will also be the franchisor’s responsibility to allow investors / entrepreneurs to operate the business under license in their own area – known as a franchise territory.
Whilst they retain ownership of the business branding and trademarks, they will also grant the rights of usage of these to the franchisee in exchange for a fee (known as a license fee). The license fee is usually applicable for a certain number of years, frequently five, with the opportunity for the franchisee to extend after this period.
What are the responsibilities of the franchisor?
The franchisor has a considerable number of responsibilities, the main one being keeping the franchise network running optimally. It will be down to the franchisor to profile and select suitable candidates for becoming franchisees. Becoming a franchisee isn’t just a case of handing over the money in exchange for the license – the franchisor must effectively profile entrepreneurs who they think will be suitable for the role.
Some of the main responsibilities of the franchisor include:
- Before franchising, the franchisor should establish the franchising documents needed to produce a legally and operationally sound franchise network.
- Before rolling out the franchise to franchisees, they should test the system with a pilot franchise.
- The franchising team should invest funds from franchisees to further research and develop the business model. That means keeping up with current trends and investing in marketing to further promote the franchise network.
- National marketing campaigns should be run by the franchisor, and depending on the franchise package, localised marketing for franchisees as well to keep income and business flowing.
- Profiling and recruiting suitable candidates as franchisees to grow the franchise network and ultimately build the brand further.
- Build relationships with partners such as PR, equipment suppliers and more, so that franchisees have a steady and ready flow of materials that they need to market their franchise and carry out the day to day operation.
Is a Master Franchisee a Franchisor?
In the context of international expansion, when a franchisor wishes to expand outside of their local country, the franchisor will seek a master franchisee. They will effectively become a Master Franchisee in their own country, sub-selling licenses of the franchise model to individual franchisees in their own country. Despite this, the franchisor still owns the Intellectual Property. The benefit of recruiting a Master Franchisee in another country is all down to local knowledge. The primary franchisor won’t need to become concerned with recruiting franchisees in another country, because that will be the responsibility of the Master Franchisee.
The Master Franchisee should have strong knowledge of the market in their own country, making them powerful for growing the brand in another country.