What Does the Franchisor Get From a Franchise?
When you’re looking for the ideal franchise business, you're naturally thinking about what’s in it for you. Can you replace your current salary with income from your franchise? Can you build the business up and sell it for a good profit? Will you enjoy working for the franchise, and will it fit in with your lifestyle, or the lifestyle you want?
But understanding what the franchisor gets out of the relationship can make it easier to understand the details of the deal, and easier to maintain a positive relationship with your franchisor.
A franchise is a distribution system When you invest in a tax preparation franchise, you don’t become a CPA. You become a distribution center for the services the franchise offers. You bring your franchisors services to a new market. You keep part of the revenue in exchange for providing this service to the franchisor.
A franchise offers some security You pay for the privilege of using the name, business model, and systems of the franchisor. They’ve invested heavily in these assets, and it’s reasonable for them to expect a return from you in exchange for the work they did in preparation for your successful franchise. On the other hand, the franchise system also provides security for the franchisor: they don’t take any risk (as they would if they opened a new branch of their business), but they receive a percentage of the revenue of the franchise.
A franchise extends the brand Your franchise is an extension of the corporate franchise. Having more successful franchises increases the value of the franchisor’s business as well as their income. As long as you represent the brand well, you are an asset to the franchise and that benefits the franchisor.
This is different from buying an independent business. If you buy a hair salon business, you pay the seller an agreed-upon price that reflects the value of the business. You keep the salon, and the former owner keeps the money you paid. There is no continuing benefit to the former owner, and whether you sink or swim, the risk and the benefits are all yours.
A franchisor, on the other hand, charges fees up front, provides support and training and other assets in exchange for those fees, and then continues to receive income from your franchise over time. Since it is a percentage of revenue — not profit — they’re taking on less risk than the franchisee.
But since it is usually a percentage of revenue rather than set fees, a franchisor is taking a gamble on a franchisee. If they make the wrong choice, they could earn much less than if they choose a franchisee with more business sense, more resources, or more motivation.
This special relationship is why it’s so important to make the right choice — on both sides. Don’t approach the buying of a franchise as though you were buying a business and could expect complete control as long as you have enough money in hand. But also don’t approach it as though it’s a job interview, and once you convince the franchisor to pick you, you can relax and rely on them for support.
Think of it as a partnership in which, if both parties do a good job, both parties can win.