Franchisee vs. Franchisor: What’s the Difference?

When exploring the franchise system, two terms will come up frequently: franchisee and franchisor. At first glance, these terms may seem identical, but they actually represent completely different roles within the franchise system.

So, what is the difference between franchisees and franchisors? And how does each role fit within the structure of a franchise? In this article, we will break down the key differences between franchisees and franchisors and discuss the responsibilities and roles of each.

Key Takeaways

• A franchisor owns the brand, trademarks, and business model, granting licenses to franchisees to operate under their system.
• A franchisee purchases the rights to operate a business using the franchisor’s brand and must follow their guidelines.
• The franchisor provides training, support, and quality control, ensuring brand consistency across all locations.
• The franchisee is responsible for managing daily operations and maintaining the brand’s standards.
• Franchisees typically pay initial fees and ongoing royalties to the franchisor in exchange for support and brand rights.
• While franchisees run their own businesses, they must comply with the franchisor’s rules to maintain consistency.

What Is a Franchisee?

In short, the franchisee is the individual who purchases a franchise from the parent company. To operate the business, franchisees purchase a business license called a franchise agreement and pay the franchisor a percentage of their monthly revenue called a royalty fee.

Franchisees put in the hard work that makes the franchise wheel turn. They are in charge of their own local operations and contribute to the overall growth of the parent company.

A franchisee is the local face of a national (or even global) brand, buying the rights to operate under a franchisor’s banner. Why do franchisees buy into businesses? Because of the decreased risk and immediate brand recognition. 50% of franchise businesses make it past five years, which goes to show that franchises have a higher chance of success than other business models such as startups.

Primary Role and Responsibilities of the Franchisee

You can think of the franchisee as an investor in the company that takes charge of a small piece of the company’s operation. While they may not be involved in the company-wide decision-making, they are solely responsible for their individual franchise. Let’s take a look at some of the main responsibilities that fall on the shoulders of the franchisee.

Manage Daily Operations of the Franchise

When you buy a franchise, you are responsible for all daily operations. While the franchisor may assist you in getting the franchise up and running, for the most part, you’ll be in charge of managing the smooth running of the establishment. This includes tracking inventory, local marketing campaigns, managing finances and cash flow, and much more.

Paying Ongoing Royalty Fees

One of the distinguishing features of the franchise system is that franchisees pay for the privilege of using the name. As a franchisee, you’ll pay ongoing royalties to the parent company—usually 5-6% of gross sales. This is the primary way that the franchisor makes money in the franchise system, and while it can be frustrating to lose out on profits, royalty fees are a small price to pay for the rights to operate a known and trusted brand.

Hiring Staff

Franchisees are also responsible for hiring and training staff. No franchisee can operate a business on their own, so you’ll need a team of superstar staff to help you run things. While the franchisor may provide training materials and guidelines to help get your new staff up to speed, franchisees are responsible for hiring, firing, and managing employees.

Securing Appropriate Licenses

Franchisees handle the red tape, ensuring every necessary permit and regulation is checked off. In most industries, you’ll need to obtain specific licenses to operate your franchise legally. And, while the franchisor may assist by telling you which permits you need, you’ll likely be on your own when it comes to actually securing them.

Following the Franchisor’s Brand Guidelines

Franchisees may control the day-to-day operations of the business, but the franchise is not their personal playground. At the end of the day, the parent company has full control, and franchisees must stick to the company’s brand guidelines. For example, franchisors may set guidelines on what uniform staff should wear, how you can decorate the business, what products you can sell, and how you can advertise them.

Managing Inventory

The franchisee is also responsible for ordering new stock. As a franchisee, you’ll need to keep a close eye on your inventory to ensure you never run out of your essential items or accidentally overorder. Properly managing inventory involves analyzing trends in the market and constantly tracking the rising and falling purchasing costs of your stock. This can be a pretty big learning curve, especially for franchisees without past retail or restaurant experience.

Marketing to a Local Consumer Base

National ads spark interest, but local marketing drives action. While often the franchisor is responsible for the “big picture” ad campaigns, individual franchisees manage their local markets. Franchisees typically invest between 1% and 3% of their gross sales into local advertising, turning their neighborhoods into thriving hubs for the brand.

Maintaining a Good Brand Reputation

Just one bad review from a single franchise can echo across the entire organization. This is why franchisees guard the brand’s reputation like their business depends on it—because it does. Franchisees are the face of the franchise in their territory, and they must own that responsibility. The entire franchise system depends on each franchisee’s commitment to prioritizing customer experience and brand reputation.

Attending Franchise Training Sessions and Conferences

Training sessions and conferences keep all franchisees connected and competitive. These sessions and seminars are where franchisees sharpen their skills, learn new strategies, and stay ahead of industry trends. These corporate conferences also allow franchisees to connect with fellow operators, exchange ideas, and build networks.

What Is a Franchisor?

The franchisor is the parent company. Franchisors are generally business owners who started the company, saw success, and then decided to franchise the business to drive exponential growth. You can think of the franchisee as the worker bees and the franchisor as the queen. The franchisor holds the entire franchise system together, lays down a strong foundation, and keeps things organized to maximize the success of the system.

In 2024, franchises added 221,000 jobs and expanded to 821,589 locations nationwide. Franchisors are tasked with keeping the brand consistent across all locations and are the “behind-the-scenes” players who ensure franchisees have everything they need to succeed.

Primary Role and Responsibilities of the Franchisor

So, I’ve established that the franchisor’s main role is to keep everything from falling apart. But what are the franchisor’s actual responsibilities?

Create and Uphold the Franchise System

What sets franchises apart from standard business models is the uniform and streamlined system they follow. The franchisor is responsible for designing and perfecting the franchise “playbook” before handing it over to franchisees. Prior to selling franchise agreements to eager franchisees, you’ll need to establish your business and ensure it is scalable.

Provide Support to Franchisees

One of the most important roles of a franchisor is to support franchisees as they set up new franchises and set off on the path to success. Each franchisee will represent your brand, so it is important to ensure they have all of the support they need. Franchisors often help new franchisees with training staff, marketing, setting up inventory, and building out the new franchise location. The success of each franchise is in the franchisor’s best interest. After all, with each dollar the franchisee makes, more money goes into the franchisor’s pockets.

Expand and Scale the Franchise

In 2024, franchises generated an estimated $893.9 billion in revenue, a figure that is expected to surge in 2025. Franchisors are growth architects, designing systems that make it easier to quickly grow and scale their business. By handing over the reins of the daily operations to franchisees, franchisors have the opportunity to focus more energy on sustainably growing the business.

Manage Broader National Marketing Campaigns

While franchisees focus on marketing to their local customer base, franchisors manage regional and national advertisements. For example, the franchisee may sponsor a local Little League baseball team, while the franchisor will run a nationwide TV ad campaign or sponsor a major national event.

Manage Brand Reputation

A great reputation takes years to build and only one misstep to shatter. Franchisors know this better than anyone. As the franchisor grows the business, they must maintain the brand’s reputation and ensure each new franchise lives up to the same standards.

Key Differences: Franchisee vs. Franchisor

Franchisees and franchisors are the most important pieces of the franchise system. Their roles and responsibilities create a well-oiled machine that drives the success of the franchise as a whole.

Drive Your Franchise Dreams Forward with Franzy

Whether you are looking to purchase a franchise business and become a franchisee or franchise your existing business to become a franchisor, you’ll have your work cut out for you. If you’re ready to make moves, Franzy is the best place to start. Think of Franzy as your backstage pass to the franchising world. Our platform connects prospective franchisees with franchisors which simplifies and streamlines the process. No matter what your franchise goals are, Franzy is the perfect guide.