Franchisee - What is a Franchisee? A Complete Guide

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what is franchisee

Originally posted on 07/06/2017. Updated on 03/05/2019.

A franchisee is a person that purchases the right to use an already existing business trademarks, proprietary knowledge and associated brands from the franchisor. The franchisor owns the brand and sets the terms for licensing a franchisee to sell goods or services under the existing brand name, business model and its trademarks. In essence, the franchisee operates a business under the franchises brand. The franchisee has to follow special guidelines outlined by the franchisor and, the majority of the time, the franchisee needs to pay an ongoing royalty fee to the franchisor.

Why should you become a franchisee?

Franchising is a great way for entrepreneurs who dont have heaps of experience in the particular industry to run their own business, as they will receive ample guidance from the franchisor. Franchisors can share their years of industry-specific and business-related experience and expertise with the franchisee and, in no time, franchisees will be shaped into highly skilled and knowledgeable businessowners. The franchise model allows franchisees to grow under an established brand and provides more security than going it alone.

The franchisor will provide ongoing support with recruiting staff, setting up for launch day, advertising and much more. For instance, when setting up the location, a franchisee is normally provided with an exclusive area where there arent any other franchises with the same or too similar an offering to limit internal competition. To compensate for the franchisors advisory role and support, franchisees must pay an initial franchise fee and an ongoing royalty fee which is usually a percentage of gross revenue. In comparison to starting a business from scratch, opening a franchise generally requires much less capital.

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Franchisee or Entrepreneur?

In order to fully understand what a franchisee is, it is helpful to consider whether a person who buys into a franchise business can be defined 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 franchisors 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 things entrepreneurs are, as is outlined in the section below.

What does a franchisee do?

  • Build a loyal customer base. Listen to customer feedback and provide exceptional customer service.
  • Protect the brand. Operate the business in compliance with the system operating standards set out by the franchisor.
  • Promote the franchise. Advertise the brand and its products or services in accordance with the franchisors guidelines.
  • Support its growth.
  • Recruit staff. It is the franchisees responsibility to recruit and train staff.
  • Manage finances and accounts. This will include paying wages and bills.
  • Maintain quality control.

What makes a franchisee successful?

In order to run your very own franchise successfully, you need to be able to learn new skills and apply them to operating your franchise. You will take on a multitude of roles, from a financial advisor to a trainer, to customer service assistant; you will have to 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.

Be sure to stick to the franchises system standards. When you become a franchisee, you are agreeing to follow the franchisors operating system, which will refer to specific requirements that you need to adhere to. For instance, using designated suppliers and specific marketing materials. It is this, on top of the licensing rights and restrictions on how you can operate under the franchisors brand, that your investment goes towards. In return for being able to use the franchisors business model and pre-made operating system, the franchisee is obliged to follow instructions on how to sell products and services and report their sales and expenses. If franchisees fail to meet the standards set out by the franchisor, they risk breaching their franchise agreement.

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 benefitted 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).

The research also found that approximately 90 percent of franchisees have reported profitability annually for over 20 years in a row. This is a continuing trend.

Therefore, through analysis of the advantages of becoming a franchisee and reflecting on the UK franchising industry as a whole, it is clear that there has never been a better time to follow your dream of becoming your own boss and start 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.

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