A franchisor is a person or company that grants a license to a third party known as a franchisee, giving them the right to open a new location and sell products or services using their brand, intellectual property, or expertise. The franchisor is the company owner and has the right to grant this license to a new franchisee.
What does a franchisor do?
The franchisor is the original company owner, so they look to recruit franchisees to expand the brand, which grants them the rights to use the brand name to sell products once they have paid their franchise fees and agreed to follow the franchises proven system by signing the franchise agreement which is required for all new franchisees. This agreement offers full transparency between the franchisor and the franchisee, providing a level of protection for both parties in case they do not meet their expected requirements.
The franchisor is also responsible for making any changes they wish to make to their products or services based on the latest industry trends, which helps the franchisees to stay ahead of their competition when running their franchise businesses.
What does a franchisor provide?
Once the initial franchise fees are paid, and the franchise agreement is signed, the franchisor will provide some initial training before the new franchise location opens its doors to the public. This training can sometimes include digital and real-life examples to ensure the franchisee can confidently run their franchise businesses day-to-day operations.
How does the franchisor make a profit?
Franchisors make a profit from initial and ongoing fees such as:
- Initial franchise fees: New franchisees will typically have to pay a flat fee in order to start the franchise after signing the franchise agreement. This fee usually grants them the initial rights to use the established brand name in order to sell their products or services as soon as possible so the franchisee can see a quick return on investment (ROI).
- Franchise royalty fees: As a franchisor, depending on your franchise agreement, you can typically expect to receive a percentage of a franchisees gross sales on a monthly, quarterly or annual basis, depending on your franchise agreement. This can either be a fixed fee each month or a percentage-based fee, although most franchisors operate under the percentage-based fee model.
- Franchise marketing fees: Some franchisors will require a marketing fee in order to manage your franchise locations marketing campaigns. Although some franchise opportunities will allow you to do your own marketing as a franchisee, most will require a marketing fee as you will be using your franchisors marketing methods that have already been proven successful by former franchisees.
- Resale fees: This is another fee you can be expected to pay as a part of your exit plan as a franchisee. Most franchises will allow you to get a percentage of your franchise locations resale fee. This can generally range between 15% up to 40% depending on which franchise you choose to invest in.
Suppose you would like to learn more about the various ways a franchisor can make a profit. In that case, we recommend you read our previous article providing everything you need to know about how franchisors make money.
What is the benefit of turning your business into a franchise?
Many benefits come with franchising your business, but the main reason why franchising is such a popular option for business expansion is that it allows you to grow your business at scale and also gives the opportunity to others that may be new to the world of business to become franchisees and run their own businesses operating entirely under your proven formula of success.