5.04 – Roles & Goals within Franchises
Being Aware of the Roles and Goals of Franchisors and Franchisees
The franchisor and franchisee operate distinctly different businesses, yet they share a common brand. The franchisor licenses an operating system to the franchisee, who then provides products and services to consumers. The franchisor’s business revolves around developing, licensing, supporting, and expanding a distribution system for its branded products and services.
Legally, the franchisor must establish and enforce brand standards to protect consumers. In contrast, franchisees are responsible for managing and operating their businesses according to these standards. Although franchisors set these standards, they typically don’t have the contractual right to manage or supervise the daily operations of franchisees. The franchise relationship is built on trust, as the franchisor’s ability to enforce standards is ultimately limited to terminating noncompliant franchisees.
The World Through Franchisor Lenses
Franchisors can range from large, established companies to small, new businesses. Regardless of size, all successful franchisors provide their franchisees with a uniform operating system and offer training and support to help them manage and operate their businesses independently. The key reasons businesses fail are unknowns and lack of resources. Established franchisors have already navigated these challenges, offering franchisees the advantage of avoiding common start-up mistakes.
Franchisors set standards and provide assistance not out of altruism but because their success depends on the consistent, sustainable delivery of quality products and services. A well-designed system ensures franchisees can easily meet brand standards, fostering profitability and growth. This success, in turn, enhances the franchisor’s brand value and attracts new franchisees.
The Franchisee's End of the Bargain
Investing in a franchise means acquiring a licence to use the franchisor’s brand name and methods for a specified period. As a franchisee, you own the physical assets of your business but not the franchisor’s brand or systems. In some cases, the franchisor may even retain the right to purchase your assets when the franchise agreement ends.
Despite these conditions, joining a well-established franchise system offers numerous benefits:
- Enforced brand standards
- A proven business model
- Recognised brand name
- Comprehensive training and ongoing support
- Research and development for new products and services
- Professionally designed advertising and marketing programs
- Opportunities to invest in additional franchises
- Avoidance of common start-up mistakes
- Access to a buying cooperative or negotiated lower costs
- A network of peer advisors among fellow franchisees
- Sometimes, a protected market or territory
Franchisors may grant franchisees a defined area, ensuring no other same-branded business operates within it. This area could be defined by various measures such as radius, population, zip codes, counties, or other geographic boundaries. The goal is to balance sufficient brand penetration with adequate customer base support for the franchisee.
Territorial Rights and Their Implications
Granting territorial rights involves ensuring enough locations for brand recognition while avoiding market saturation. Franchisees must understand these rights, which may not be permanent and could depend on performance levels. Territories may overlap in some systems, so it’s crucial for prospective franchisees to thoroughly review their contracts and consult with legal advisors to understand the territorial rights provided.
Understanding the roles and goals within a franchise system helps clarify the responsibilities and expectations for both franchisors and franchisees, paving the way for a successful partnership.
