A franchise relationship is a contract agreement between a franchisor and a franchisee that allows the franchisee the right to utilize the franchisor’s business model, brand, and/or other resources to start a new business. The potential for a franchise’s success rides on the relationship between franchisees and franchise organizations. More so, maybe, than the actual business concept. The business will only be as strong as the relationship between franchisee and franchisor in each stage of the process, from onboarding to ongoing growth opportunities.
Managing a franchise relationship requires both parties to continually invest in the other. We’ll take a look at some of the ways franchises successfully navigate their roles on either side of the franchise relationship model.
What is a franchising relationship?
There are two primary parties in a franchising relationship: the franchisor and the franchisee. While the franchisor maintains the overall direction of the business—including managing other franchises—the franchisee has a direct connection with the customers and the business.
One can’t exist without the other. What you will find, looking at examples of successful franchises, is that the franchisee and franchisor lean on one another in equal, supportive ways. Some general tips for developing a franchising relationship include:
● Determining clear responsibilities: who covers what? From operations to training to equipment, franchisees should know what franchisors provide, and what they don’t.
● Transparent financing: early on, the franchisee should know what funds will need to be invested; the franchisor should vet how prepared the franchisee is financially.
● Periodic evaluation: as the business relationship continues between franchisor and franchisee, communication should continue to ensure both parties see value and room for growth within the franchise relationship model.
What is the franchise relationship model?
The terms of a franchise are fairly simple: a franchisee gains the rights to run a business unit(s) from the franchisor by paying an initial fee and agreeing to pay a percentage of its revenue back to the franchisor. In exchange, the franchisor provides the necessary resources to support that business unit. That level of support varies from franchise to franchise, but some levels of support include:
● Specified training for the franchisee and employees.
● Equipment, materials, maintenance.
● Marketing materials and strategy—(local and corporate).
● Relevant technology access and licenses.
The franchisor is responsible for maintaining a balance between providing adequate support while giving franchisees enough leeway to run the business unit as their own.
How does a franchise relationship work?
Recognizing the importance of franchisee/franchisor relationship will save time in the long run because they will clearly define the expectations of their roles and how they collaborate to run a successful business unit.
Role of the franchisor:
● Provide expertise in fluctuating market environments by providing guidance to individual franchisees.
● Identify regional or area growth opportunities for the franchisee and long-term business direction.
● Promote core business values to reflect at the local level.
Role of the franchisee:
● Seek out resources at the corporate level to better equip the team and/or fully utilize any available resources.
● Identify local growth opportunities.
● Develop leadership at the local level.
What are the key factors in the franchise relationship?
Below we’ve listed a few of the key factors to maintain, manage, and grow any franchisee/franchisor relationship. But as these business relationships develop, it’s important to define more specific key factors that might affect your specific situation.
Communication: The business model between a franchisee and a franchisor will only succeed if their communication lines are open and consistent. Some of the best franchises show how important it is that reliable reporting is done. This gives the franchisor the needed information to make adjustments to help franchises that are struggling.
Trust: Managing a franchise relationship requires trust from both sides. What does that look like on the ground level? The more transparency in performance, the better. By identifying clear markers of success, franchisors and franchisees can solve small problems before they escalate.
Investment: Both parties should have some vested interest. This is easily accomplished with franchisees based on their initial starting fees and monthly percentage. But franchisors will only attract talented franchisees if they set up the business unit for success by providing relevant resources.
Support: Traditionally the primary role of the franchisor, franchises need support through training and mentorship to ensure the franchise is successful.
Collaboration: Franchise relationship management is done best when they collaborate openly and often, identifying weaknesses at the business unit level, but also evaluating how brand decisions at the corporate level affect individual businesses.
How do you build a manageable franchise relationship?
Depending on the role—franchisee or franchisor—the first step in managing a franchise relationship is understanding the other’s role more fully. For anyone looking into owning a franchise and becoming a franchisee, for example, that means researching every aspect of the business as an outsider, or as a franchisor, to gain perspective before getting involved directly.
A great way to do this is by scouting franchise opportunities. Franchise.com provides access to a franchise database that allows anyone to compare multiple franchise opportunities with pros and cons for each. This is a quick, easy way to begin understanding the franchisee/franchisor relationship even better.
