Franchisee

Understanding Franchisees

When a business wants to garner more market share or increase its geographical presence at a low cost, one solution could be to create a franchise for its product and brand name. The franchisor is the original or existing business that sells the right to use its name and idea. The franchisee is the individual who buys into the original company by purchasing the right to sell the franchisor’s goods or services under the existing business model and trademark.

Why Become a Franchisee?

Operating a franchise could be an ideal venture for entrepreneurs with little experience because 1) the costs of opening a franchise are low compared to starting a company from the ground up, so franchisees require very little capital to start; and 2) franchisees get a lot of help, as franchisors supervise their new franchisees closely.

Franchisee and Franchisor Relationship

The relationship between a franchisee and franchisor is inherently one of advisee and advisor. The franchisor provides continual guidance and support concerning general business strategies such as hiring and training staff, setting up shop, advertising its products or services, sourcing its supply, and so on. To start, the franchisor assigns the franchisee an exclusive location where no other franchises within the same underlying business currently operate in order to prevent competition and help ensure success.

In return for the franchisor’s advisory role, use of intellectual property, and experience the franchisee generally pays a startup fee plus an ongoing percentage of gross revenues to the franchisor.

Responsibilities of Franchisee

A franchisee must follow the proven business model that is already in place, as it helps to provide a consistent state of operations within all companies under the same brand name. The franchisee is responsible for growing the franchise via the usual means of advertising and marketing within its exclusive area of operation.

However, all marketing campaigns must comply with and be approved by the original establishment before releasing them to the public. As the manager of the franchise, the franchisee is expected to protect the brand name of the franchisor by offering only approved products and services that are linked to the brand name of the original company.

Key Takeaways

• A franchisee is a small-business owner who operates a franchise.
• The franchisee pays a fee to the franchisor for the right to use the business’s already-established success, trademarks, and proprietary knowledge.
• The franchisee receives continuous guidance and support from the franchisor.
• The franchisee markets and sells the same brand, and upholds the same standards as the original business.

Why should you become a franchisee?

Franchising is a great way for entrepreneurs who don’t have heaps of experience in a particular industry to run their own business, as they will receive ample guidance. The franchisor will already have established a successful business model and will probably have got any costly mistakes out of the way. This means franchisees can save time, money and effort, as they don’t have to build a business from scratch. The brand identity, product offering, marketing materials and customer base should already be in existence.

Franchisors can share their years of industry-specific and business-related expertise with franchisees, who should become highly skilled and knowledgeable businessowners in no time. In short, the franchise model allows franchisees to grow under an established brand and provides more security than going it alone.

What’s more, the franchisor will provide ongoing support in areas such as recruiting staff, setting up for launch day and marketing. Franchisees are also normally provided with an exclusive territory, where there are no other units of the same franchise in operation, so they aren’t in competition with a fellow franchisee.

To compensate for the franchisor’s expertise and support, franchisees must pay an initial franchise fee and ongoing royalties, which is usually a percentage of gross revenue. However, compared to starting a business from scratch, opening a franchise generally requires much less capital.

>>Read more:

• Franchisor Definition — What is a Franchisor? A Complete Guide
• A Guide to Choosing the Right Franchise
• A Beginner’s Guide to Franchising
• A guide to choosing the perfect franchise
• Franchisors and Franchisees: Know Your Obligations From Day One
• Franchise Directory: 20 Key Franchise Terms Defined
• How to Start a Franchise in the UK
• The Franchise Rules That Really Matter

Franchisee or Entrepreneur?

In order to fully understand what a franchisee is, it’s helpful to consider whether a person who buys into a franchise business can be described as an entrepreneur. According to franchise consultant Joel Libava, also known as ‘The Franchise King’, the person who created the franchise concept is the entrepreneur. To an extent, this can be accepted, in that franchisees essentially buy into the franchisor’s business system. However, franchisees are still responsible for the day-to-day running of the business and are responsible for a lot of the same elements as franchisors, as is outlined in the section below.

What does a franchisee do?

• Protects the brand. The business will only continue to be successful as long as it offers a consistent experience across its network. For this reason, the franchisor will have drafted a manual and list of operating standards, which you will be expected to adhere to. If you don’t, you’ll risk damaging the reputation of the entire franchise, and will be in breach of the franchise agreement. The franchisor may ask you to use designated suppliers and specific marketing materials, and report sales and expenses.

• Maintains quality control. Building on the previous point, you’ll need to ensure that the products or services you provide are up to scratch. If customers or clients notice that your offering is inferior to that of other franchisees in the network, your business is likely to suffer.

• Recruits and trains staff. Although the franchisor has authority over many of the aspects of your franchise unit, you’ll have to select your own workforce. It is in your interest to hire the best people you can find. Not only should they be able to do the job well, but they should also have a personality that matches the business’ values.

• Manages finances and accounts. This includes paying wages and bills. This is a big responsibility; if you forget to sort payroll, your staff may become frustrated, and if you make a mistake with your taxes, you risk facing significant consequences. It will be helpful if you are able to manage your own accounts, but if you don’t feel confident with this side of the business, you can enlist the help of a professional bookkeeping agency to make sure you keep on top of your finances.

• Builds a loyal customer base. If you’re lucky, your franchise brand will attract customers or clients from day one. If you open a Dunkin’ Donuts outlet, for example, it’s likely that locals will buy from you, as they’ll already be aware of the brand’s reputation. However, you may have to work hard to encourage repeat custom. You should endeavour to provide great customer service and listen to feedback to work out what your customers want.

• Promotes the franchise. Many franchisors ask for a regular marketing fee to finance national advertising campaigns, but they will also expect you to perform marketing activity on a local level. Of course, you’ll have to adhere to the franchisor’s strict guidelines when you do this, as you should be presenting the business in the right way, but you will probably have the freedom to decide what type of marketing you do. It could be attending local events, appearing on a local radio spot or offering discounts, freebies or tasters to passers-by.

• Supports the franchise’s growth. You should always be thinking about how you can develop the business. Reaching out to new territories, boosting your customer base and adding to your team can all have a positive effect on the business’ productivity and profitability. This will please your franchisor, and could increase your salary too. In short, be receptive to potential opportunities and keep an open mind. You’ll need to check over the franchise agreement to make sure you’re not breaching any terms and conditions but, in general, growth is positive.

Example: McDonald’s Has 34,410 Franchisees

A company that has a global presence because of its franchises is the fast-food behemoth, McDonald’s. McDonald’s was founded in 1940 by the McDonald brothers in San Bernardino, California. However, Ray Kroc opened the first official franchise for the McDonald’s System, Inc.—a predecessor of today’s McDonald’s Corp.—in 1955 in Des Plaines, Illinois (a suburb of Chicago).

At fiscal year-end 2018, there were 37,000 McDonald’s restaurants in 119 countries around the world, 92.7% of which were franchised. So, the company has approximately 34,410 franchisees. The company’s long-term goal is for 95% of McDonald’s restaurants to be owned by franchisees.

McDonald’s either owns the land and buildings used by the franchisees or secures long-term leases for the franchised sites. As part of the contractual agreement between the company and franchisees, a franchisee provides a portion of the capital required by making an initial investment in the equipment, seating, décor, and signs in the location that the company will provide. For would-be franchisees, McDonald’s requires an initial downpayment of 40% (of the total cost) for a new restaurant or 25% (of the total cost) for an existing restaurant; and at least 25% of the downpayment must be in cash. 

The legendary success of the McDonald’s franchise story is partly a result of the company’s commitment to maintaining consistent standards in its menu that resonate across its various chains. A Big Mac in Los Angeles should and does have the same quality as one in London. Franchisees manage their own pricing decisions and staffing matters while benefiting from the brand equity and global experience of McDonald’s.

Franchises currently available in the U.S.:

Results 1 — 10 of 4394

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Health & Beauty

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Koala

Investments

$174,087 – $456,010

Franchise fee

$50,000

The primary goal of a Koala Center for Sleep Disorders is to help you sleep better than you ever have before so you can enjoy life to the fullest.

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Handyman Franchises

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Sometimes Spouse

Investments

$31,150 – $66,618

Franchise fee

$24,999

Royalty fee

7%

Sometimes Spouse makes your life easier by taking care of those honey do’s around the house. Sometimes Spouse frees up your time to put family first and enjoy life.

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Retail Franchises

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Enviro-Master Int’l.

Investments

$166,300 – $292,700

Franchise fee

$45,000 — $85,000

Royalty fee

6%

Founded by industry veteran Pat Swisher, Enviro-Master provides services and products to clean, deodorize and disinfect public restrooms. The company also sells restroom-cleaning supplies, including soap, disinfectants, air fresheners, paper products and cleaning products.

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iCare — Intelligent Home Care Solutions

Investments

$19,900

Franchise fee

$19,000

Royalty fee

6%

Delivers a comprehensive suite of non-medical services to its clients including home making, home support and personal care services. Its mission is to enable consumers to maintain a quality of life in the comfort and surroundings of their own home, while providing our franchise partners opportunities to become self employed, working and building their businesses in a positive growth-oriented environment.

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Car Wash Franchises

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NuVinAir

Investments

$160,000 – $310,000

Minimum Cash Required

$50,000

NuVinAir Eco-Friendly Cyclone attacks odor and airborne pollutants by safely expelling a dry, hygienic vapor throughout the vehicle’s HVAC system and cabin. It fits into a cup holder and contains a natural, highly effective compound that has been used to decontaminate compromised public buildings and safely treat drinking water.

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Pizza Franchises

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Ameci Pizza & Pasta

Investments

$225,000 – $325,000

Franchise fee

$25,000

Royalty fee

6%

The Ameci Pizza and Pasta corporation is continually expanding into new areas, and becoming a franchisee will make you part of a fast-growing and lucrative industry.

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Smoothie & Juice Bar

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MixStirs

Investments

$59,100 – $197,500

Franchise fee

$25,000

Royalty fee

5%

MixStirs’ menu includes smoothies (or «stirs») and juices, as well as healthy snacks, breakfast items, soups, salads and sandwiches. The Garden City, New York company has been franchising since 2007, and franchises are located primarily within health clubs and fitness centers.

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PersoNet

Investments

$35,200 – $100,000

Franchise fee

$15,000-$60,000

Royalty fee

Varies

We offer a proven business model that currently provides hundreds of clients with the freedom to focus on the core objectives of their business, while leaving the human resource and personnel issues to the professionals at The Personnel Network.

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Food Franchises

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Thai Express

Investments

$330,400 – $731,700

Franchise fee

$30,000

Royalty fee

6%

Thai Express franchise is an Asian restaurant franchise that provides made-to-order Thai cuisine from fresh ingredients, quickly cooked in front of customers while they wait. A vibrant environment, simple menu of more than 300 individual dish options, and inviting customer service took Thai Express from a humble five stores to 285 locations in Canada in just 12 years.

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Accountancy & Financial

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American Tax and Financial Group

Investments

$33,600 – $43,000

Franchise fee

$15,000

Royalty fee

10%

American Tax and Financial Group was founded in 1997 in Dallas, Texas by Calvin Dale Brown II, as a sole proprietor certified public accounting firm.

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What makes a franchisee successful?

If you take on all the responsibilities listed above, you’re likely to be a highly successful franchisee. In order to successfully run your very own franchise, you also need to be able to learn new skills and apply them to your franchise. As we’ve explained, you will take on a multitude of roles, from that of financial advisor, to trainer, to customer service assistant, so you should be prepared to absorb lots of new information and throw yourself into the role. The franchisor outlines the brand standards, but it is your responsibility to manage the day-to-day running of the franchise.

You should also be prepared to dedicate a large proportion of your time to your new business venture. It is true that, by joining the franchise system, you’ll save time you would have spent developing a business from scratch, but that doesn’t mean it’s an easy ride. You will still be a business owner, and that means a good deal of hard work and dedication. You must be ready to put in as much time and effort as it takes to make your unit profitable.

Talk to your family before signing up to a franchise agreement to make sure they understand what it will involve. It’s likely that you’ll have to sacrifice some family time, especially in the early stages. You may also find that the added stress of launching a franchise unit will take its toll on your relationships with family and friends. But, as long as you have a good support network around you, you should be able to come out the other end with a thriving business.

What Is a Franchisee?

A franchisee is a small business owner who operates a franchise. The franchisee has purchased the right to use an existing business’s trademarks, associated brands, and other proprietary knowledge to market and sell the same brand, and uphold the same standards as the first business. Franchisees become owners and independent operators of third-party retail outlets called franchises.

Franchises are an extremely common way of doing business. In fact, it is hard to drive more than a few blocks in most cities without seeing a franchise business. Examples of well-known franchise business models include McDonald’s (NYSE: MCD), Subway, United Parcel Service (NYSE: UPS), and H. & R. Block (NYSE: HRB). In the United States, there are franchise business opportunities available across a wide variety of industries.

There are benefits and drawbacks to investing in an already-successful business; as with any investment, research your options thoroughly before you decide to purchase a franchise.

The Franchise Industry

According to The British Franchise Association-NatWest Franchise Survey 2018, the UK franchising sector is booming, with much of the recent growth being attributed to under-30s and female entrepreneurs. There are almost 50,000 franchises contributing over £17 billion to the British economy and providing over 710,000 jobs. In the last two years, 37 percent of all new franchisees were women and over 25 percent were aged 30 or under.

The expanding franchising industry has benefited regional economies. Since 2015, there has been economic growth of 11 percent in Yorkshire (to £1 billion), 7 percent in the North East (to £800 million), 14 percent in the East Midlands (to £1.2 billion) and 18 percent in Wales (to £500 million).

Having looked at the benefits of becoming a franchisee and the UK franchising industry as a whole, it’s clear that there has never been a better time to follow your dream of becoming your own boss by starting a franchise. Head to our franchise directory today to learn about some of our most exciting brands looking for franchisees. You can also have a look at our best franchises and most profitable franchises too.