Franchise, Franchisor and Franchisee

Summary

This video script explains the dynamics of franchising, distinguishing between franchisors and franchisees. Franchisors, like McDonald's, create a successful business model and allow franchisees to use it by paying an initial fee and sharing profits. The franchisor controls product range, outlet appearance, and staff uniforms, while franchisees manage staff training, recruitment, and inventory. The script uses McDonald's as a prime example to illustrate how franchising operates.

Takeaways

• 📝 Franchisor is the creator of a franchise (e.g., McDonald's) and grants permission for the franchisee to use the business model.
• 💼 Franchisee is the person or company that pays to join the franchise and operates under its brand.
• 💰 Franchisee pays an initial fee and shares profits with the franchisor in exchange for using the franchise model.
• 🍔 Franchisor controls key elements like product range (e.g., Big Mac), store layout, and uniform design.
• 📋 Franchisor maintains control over the branding and appearance to ensure uniformity across all franchise outlets.
• 👨‍💼 Franchisee is responsible for staff recruitment, training, and stock management in their franchise location.
• 🎓 Franchisee controls how they train their staff but must adhere to franchise standards.
• 📦 Stock control falls on the franchisee, who must manage inventory based on local demand.
• 🏢 Franchises like McDonald's ensure that all branches maintain a similar look and operational flow.
• 💼 The division of responsibilities is clear: franchisor controls branding and core operations, while the franchisee manages local execution.

Q & A

What is the role of a franchisor in a franchise business model?

A franchisor is the creator of a franchise, such as McDonald's, who provides a successful business formula for the franchisee to use in exchange for an initial fee and a percentage of profits.

What is the difference between a franchisor and a franchisee?

A franchisor is the owner of the franchise concept, while a franchisee is the individual or company that pays to operate a business under the franchisor's brand and system.

What are the initial costs a franchisee must pay to a franchisor?

A franchisee must pay an initial fee to the franchisor to gain the rights to operate the franchised business.

How does a franchisee compensate a franchisor after the initial fee?

After the initial fee, a franchisee compensates the franchisor by giving a percentage of their profits.

What aspects of the business does a franchisor typically control?

A franchisor typically controls the product range, the interior design of the outlets, staff uniforms, and the overall brand image.

What are the responsibilities of a franchisee in terms of operations?

A franchisee is responsible for staff training, recruitment, store operations, and ensuring adequate stock to meet anticipated local demand.

Why do franchisors require franchisees to adhere to a specific format for their outlets?

Franchisors require a specific format to maintain brand consistency and recognition across all franchised locations.

What is the significance of staff uniforms in a franchise like McDonald's?

Staff uniforms in a franchise like McDonald's are significant for maintaining brand identity and presenting a unified image to customers.

How does the franchisor's control of the product range affect the franchisee?

The franchisor's control of the product range ensures consistency in product quality and customer experience, which can impact the franchisee's operations and sales.

What are the benefits for a franchisee in joining an established franchise like McDonald's?

Joining an established franchise like McDonald's provides a franchisee with a proven business model, brand recognition, and support from the franchisor.

How does the franchisor's control over the franchise system benefit the franchisee?

The franchisor's control ensures that the franchisee receives ongoing support, training, and access to the franchisor's marketing and operational expertise.

Outlines

00:00

🤔 Understanding the Franchise Terminology

This paragraph clarifies the difference between the terms 'franchisor,' 'franchisee,' and 'franchise.' A franchisor is the creator of a franchise, such as McDonald's, who allows a franchisee (another party) to use their successful business formula in exchange for an initial fee and a portion of the profits. The franchisee is the person or company that pays to become part of the franchise. The paragraph explains the relationship between the franchisor and franchisee and highlights that the franchisor provides the business model while the franchisee pays fees and shares profits.

🏢 Franchisor Controls: Product and Branding

This section focuses on the aspects controlled by the franchisor within the franchise model. The franchisor dictates the product range (like the specific menu items at McDonald's), the interior design of the outlets (ensuring a consistent look across all locations), and the staff uniforms. These elements ensure a standardized brand experience for customers across different franchise locations.

👥 Franchisee Responsibilities: Staff and Operations

This part explains the responsibilities of the franchisee in managing their franchise. The franchisee is in charge of training the staff for their specific branch, recruiting suitable employees, and maintaining appropriate stock levels based on local demand. These responsibilities highlight the operational control the franchisee holds within the broader framework set by the franchisor.

Keywords

💡Franchise

A franchise is a business model in which a company (the franchisor) grants another party (the franchisee) the right to operate a business using its brand, business methods, and intellectual property. In the video, McDonald's is used as an example of a franchise where the franchisee operates a local branch using the established brand.

💡Franchisor

The franchisor is the creator and owner of the business model and brand. They allow others (franchisees) to use their successful formula in exchange for fees and profit sharing. The video uses McDonald's as an example, with the franchisor controlling aspects like product range, branding, and the overall business format.

💡Franchisee

A franchisee is the individual or company that purchases the rights to operate a branch of the franchisor’s business. They pay an initial fee and a portion of their profits to the franchisor. The franchisee in the video is responsible for managing the local branch, including staffing and stock control, while adhering to the franchisor's guidelines.

💡Initial fee

The initial fee is a one-time payment that the franchisee must pay to the franchisor to join the franchise system. It is part of the cost of gaining access to the business model, brand, and support. The video mentions this fee as the first financial exchange in the franchise relationship.

💡Profit sharing

Profit sharing refers to the franchisee giving a portion of their profits to the franchisor. This is a continuous financial relationship where the franchisee pays the franchisor a cut of their earnings in exchange for ongoing support and brand use. The video highlights how franchisees must share profits after their business becomes successful.

💡Product range

The product range refers to the specific items that a franchise can sell, which are determined by the franchisor. In the video, McDonald's product range, like Big Macs and chicken sandwiches, is controlled by the franchisor to maintain consistency across all franchise locations.

💡Staff recruitment

Staff recruitment is the process by which the franchisee hires employees for their local branch. While the franchisor controls many aspects of the business, the video notes that the franchisee is in charge of selecting and hiring their own staff.

💡Training

Training refers to the preparation and education of staff to work in a franchise according to the standards set by the franchisor. In the video, the franchisor controls the training process to ensure consistency in service quality across all franchise locations.

💡Stock control

Stock control is the responsibility of the franchisee and involves managing the inventory of products to meet local demand. The video explains that while the franchisor sets the product range, the franchisee must ensure they have enough stock to fulfill customer needs based on local sales patterns.

💡Uniform

Uniform refers to the standard clothing worn by employees in the franchise, which is typically determined by the franchisor. The video uses McDonald's as an example, where all staff wear the same uniforms to maintain a cohesive brand image.

Highlights

Definition of a franchisor: the creator of a franchise who provides a successful business formula.

Definition of a franchisee: the person or company who pays to become part of a franchise.

Franchisee pays an initial fee to the franchisor for the right to use the business formula.

Franchisee agrees to give a percentage of profits to the franchisor.

Franchisee operates with the franchisor's control over the product range.

Franchisee benefits from the franchisor's established brand and marketing.

Franchisee receives training and support from the franchisor.

Franchisee is responsible for staff recruitment and training at their location.

Franchisee manages inventory and supply chain for their franchise.

Franchisee has control over local marketing and promotions.

Franchisee operates under the franchisor's guidelines for quality and service.

Franchisee benefits from the franchisor's established systems and processes.

Franchisee has the freedom to operate their own business within the franchise framework.

Franchisee is part of a larger network, which can lead to economies of scale.

Franchisee can leverage the franchisor's reputation and customer loyalty.

Franchisee has access to the franchisor's research and development for new products.

Franchisee operates with the franchisor's control over the outlet's interior design.

Franchisee is expected to maintain uniformity in staff uniforms and branding.

Franchisee's success is tied to the franchisor's ongoing support and the franchise system's effectiveness.

Transcripts

franchise franchise or franchisee there

the three words all sound the same let's

clear it up

okay franchisor so they are the creator

of a franchise a franchise such as

McDonald's who enables the franchisee

note to easy bread to use the successful

business formula in exchange for an

initial fee and a cut of the profits

whilst the franchisee is the person or

company who has paid to become part of

the franchise let's look at how it works

so you're the franchisor they've got the

idea they will give the franchisee the

idea so that's why you can think of

franchisee like employee pencil bees and

bread that's a way to think about it and

then in exchange for giving the idea the

franchisee will firstly pay an initial

fee to the franchisor and then when the

franchisee is making profits with the

franchise such as McDonald's then they

will give a split a cut of the profits

to the franchisor the key is who

controls what when you have a franchisee

so the franchisor will control the

product range think about those the prop

range of add-ons we know it it's like

your chicken sandwich your Big Mac etc

the interior of the outlet many

McDonald's for example they all look for

the same indoors and they've all got the

same format for their dry fruit and even

behind the scenes if you've worked up

Donald's they will all be laid out very

similar and then a free staff uniform

Figg McDonald's all the staff are

wearing the same uniform with their name

and their badge with the beginning the

franchisee so the employee franchisee so

number one spot training very control of

training their staff up who work for

their branch of the franchise number two

staff recruitment so they're in control

of who they select to work for them

and number three stop control so they

are it's their responsibility and then

they're in control of getting the

correct amount of stocking for the

anticipated demand that they will have

in their franchise perhaps in the local

area remember example the franchise is

McDonald's