How Is A Franchise Structured?

The Franchisor

The franchisor is the one who develops the business and then provides assistance in the form of training, support, professional management, marketing, ongoing product research and training via seminars, newsletters and ongoing communications. The franchisor owns the systems, trademarks, etc. and licenses or franchises, on a limited basis, to others (the franchisee) the ability to participate in establishing their own location(s) or territory of the business.

The Franchisee

The franchisee buys into the Franchisor's success. This means the franchisee obtains "limited" rights to open and operate their own individual location(s) in a given market territory. The franchisee also, typically, agrees to follow pre-set methods of operating the business and to participate in programs with other franchisees and the franchisor.

When a franchise is structured properly, it gains its power from the interrelationship of the franchisor and all of the franchisees. Each party needs the other to succeed and each supports and helps the other to grow and expand.

Franchisors, for instance, need successful franchisees to sell more products and services to consumers and to generate revenues from which royalties are paid. Royalties are the economic life blood of any franchise company.

Franchisees need successful franchisors to develop new products, test new concepts, stay current with market trends and provide effective business services that most independent business people could never afford to buy on their own.