If you are considering a franchise as an E-2 investment, it’s a really good idea to get to grips with the franchisee vs franchisor roles. And how the whole franchisor/franchisee relationship works in practice.
This allows you to operate a franchise using a proven business model while still building your own enterprise with support from the franchisor.
At the centre of this legal partnership is the franchise agreement. This binding contract outlines what the rights and responsibilities are, and what each party is expected to achieve. The franchise disclosure document (FDD) is another key document. This gives prospective franchisees a good idea of the costs, rules and performance track record of the franchisor before they invest.
Think of a good franchisor/franchisee relationship as a long-term marriage. Both parties have to work together and communicate and execute well if they are going to succeed over the long term.
Understanding the Franchisor–Franchisee Relationship
The franchisor owns the brand assets – the trademark, the system, and the standards. What the franchisee buys is the right to operate a franchise location under that brand name. This is not just a casual agreement; it’s one of the most structured business relationships out there.
In the franchisor/franchisee relationship, the franchisor provides:
- a tried and tested business model (often referred to as the franchisor’s business model),
- an operating manual and the tools to use it with,
- training and ongoing support.
In return, the franchisee puts in the capital, builds the local business, hires the staff, looks after customers, and keeps the brand consistent because the brand reputation affects the whole system, including all the other franchises.
What Does a Franchisee Do?
A franchisee is the person who buys a franchise business and runs it day to day, as the local owner or owner with a manager. You may be a new small business owner, but you’re not starting from scratch – you’ve got the benefit of a proven franchise system to build on.
Typical things that a franchisee has to do include:
- Operate the business day by day, which means looking after staff, making sure the right people are in the right place at the right time, delivering good service to customers, and making sure the customer experience is as good as it possibly can be.
- Execute local marketing campaigns, but using the franchisor’s approved guidelines.
- Order supplies when you need them (where this is applicable), and manage the relationships with your suppliers and vendors.
- Deliver the products or services as set out in the brand’s standards.
- Hire, train, and manage the staff.
- Keep an eye on how well the business is doing and report on the things that the franchisor needs to know.
- Get ready for launch activities, like a grand opening.
Franchise Fees and Payments
Financial commitment is a key part of the franchisor/franchisee relationship:
- The franchisee pays a one-off franchise fee (often referred to as the franchise fee in other contexts).
- The franchisee pays ongoing royalties to the franchisor (often described as collecting fees and marketing contributions on the franchisor’s side).
- In other words, the franchisee pays to access the system and stay in good standing with the franchisor.
This structure helps fund support, system development and brand-building across the whole network.
What Makes a Strong Franchisee (Especially for E-2)?
For E-2 investors and prospective franchisees, it’s not just about buying a franchise – it’s about running a real business that can grow over time. Some of the things that often make the difference between success and failure include:
- Leadership and management skills.
- A willingness to follow the system – even if you have loads of experience already.
- Having the right amount of capital to put into the business and sustain it in the early days.
- A commitment to building a team and a customer base.
Example: John is an entrepreneur who wants to get established in the US market. He invests in a service-based franchise, follows the franchisor’s playbook, hires staff, executes local marketing, delivers the services consistently, and keeps a close eye on customer retention. Over time, the franchise becomes successful, and the results strengthen his overall business plan.
What Does a Franchisor Do?
A franchisor is the company that created the concept, built the system, and licenses it to franchisees. The franchisor’s job is to protect the brand and support the performance of the franchisees.
Typical things that a franchisor does include:
- Provide good training for new franchisees and their staff.
- Deliver ongoing support to franchisees (coaching, operations support, field visits, helpdesk resources).
- Keep the operating system up to date (new procedures, new tools, new technology).
- Create and distribute marketing materials and brand campaigns.
- Make sure that the brand standards are enforced to keep things consistent across the board.
- Keep a close eye on how well the business is doing, and make changes to the system accordingly.
A good franchisor is very invested in the success of the franchisees, because the franchisor’s reputation and long-term growth depend on how well each franchise location does in fact perform.
Franchisee vs Franchisor: Key Differences at a Glance
| Aspect | Franchisee | Franchisor |
|---|---|---|
| What you own | You operate your own business (a franchise location) | The franchisor owns the brand, trademark, and system |
| Revenue | Sales from customers | Royalties and collecting franchise fees |
| Control | Run operations within rules | Sets and enforces brand standards |
| Focus | Local execution: customers, employees, operations | System growth, support, and brand protection |
| Support | Receives training and ongoing support | Provides initial training and ongoing assistance |
This is the simplest way to view franchisee vs franchisor: the franchisee executes locally; the franchisor builds and protects the system.
Benefits and Tradeoffs for E-2 Franchise Buyers
Benefits of Buying a Franchise
Getting started with a franchise is basically like getting a leg up – an established brand thats already proven itself; a business model that works, tested and true; training, templates and ongoing support; plus crystal clear documentation (FDD + franchise agreement) to help you make a concrete pitch
The downsides are: you’re stuck with the system – whether you like it or not – and you’ve got to keep paying fees (royalties, marketing contributions, etc)
Trade-offs to Expect
Even though you may not agree with certain processes, you are still expected to follow ‘the system’. You must pay ongoing fees. And you do run the risk of being tarred by one bad operator – what happens on your watch can rub off on the whole brand.
E-2 Fit: Why the franchise model can be good news for E-2 buyers
A lot of E-2 candidates find the franchise route pretty tempting. They like the idea of an already-structured business model that’s repeatable, measurable and structured. The franchise disclosure document & franchise agreement lay out the basics of how the business will run, what your responsibilities are, the kind of support you can expect, and how the local business will be run.
Here’s the deal: it’s still on you to run the business like it’s your own – that means hiring the right team, making business decisions and chasing growth. ‘Passive investment‘ just doesn’t bring in the returns you’re hoping for.
Final Takeaway
Franchisee vs franchisor: it’s pretty simple, really. The franchisor gives you the brand, systems, training and day-to-day oversight. You run the business and build the local customer base. Do it right, and this partnership becomes a pretty powerful engine for growth, stability and long-term success.