What is a Franchisee?

Definition: A franchisee is an individual or company that owns a franchise. The franchisee purchases the franchise to the franchisor and then runs a business under certain terms agreed in a contract. The agreement generally includes specific rights and duties for each party, franchisor and franchisee.

What Does Franchisee Mean?

When a company purchases a franchise its decision is generally driven by the premise that the business will be more successful under a franchising scheme than under an independent operation. The franchise often includes the right to use a specific brand but also some management support given by the franchisor regarding a wide range of issues such as training, written methods and procedures, advise to select the franchise location and access to high-quality raw materials.

At the same time, the franchisee has several obligations that commonly embrace monthly payments to the franchisor and meeting up various guidelines and standards previously established in the contract.

Example

Linda Roil is a 45 years-old mother of two. She decided to start a new business since their two sons left home to study at college. Linda always loved to bake cookies and cakes so she wants to sell baked goods at her own store. But Linda does not know how to run a business since she only knows how to bake. She needs advice on how to hire personnel, select a location for her store, train employees and administer daily operations.

Given her limitations, Linda decided to buy a Sweet Bakers franchise, which is a well-established bakery brand that has stores located in multiple places around the country. Since there is no Sweet Bakers store in Linda’s neighborhood, she thought this was a good business opportunity.

The franchisor selected a high-traffic site in a near mall and provided the new store with all the required support as well as marketing activities through various mass media. The franchisee has the obligation to pay 10% of sales and follow all guidelines established by the franchisor.