If you are looking at the development of a franchise business, it is worth to study all the advantages and disadvantages of franchising for both parties: those who sell the franchise, and those who buy it.
This approach will help to form an objective opinion about the pros and cons of the franchise and understand how to build a relationship with the franchisor to get the maximum benefit from cooperation.
Why sell a franchise: the advantages for the franchisor
Fast business growth. The creation of a franchise network provides an opportunity to develop business without complicating the management structure of the parent company and large-scale capital investment. Franchisees, who are business partners, play the role of managing new businesses.
Franchisees invest their own money in opening representative offices, select a team of employees, buy equipment, and spend money on advertising. They take all the risks associated with a bad start, so they have a direct interest in success.
Franchisees’ financial investment in the brand infrastructure and their strong motivation in the development of the network enterprises allow for rapid growth of the franchisor’s business.
Increased brand awareness and strengthened business reputation. The fact that the franchise is in demand speaks for itself: the franchisor company is successful and its success wants to repeat. This contributes to the growth of brand popularity among consumers and demonstrates a high level of trustworthiness to potential business partners. The growth of the franchise network is excellent advertising.
Direct income from franchise sales. Perhaps the most obvious of all the advantages – the growth of the franchisor’s income due to the lump-sum fees, royalties and an increase in the market for the company’s products.
Disadvantages for the franchisor
Threats to the reputation of the brand, related to the quality of service at the enterprises of the network. Franchisees are largely responsible for monitoring the quality of services at their locations. If some franchisees make serious lapses in their work from time to time, it will affect the customers’ attitude towards the brand.
This is most of all true for service businesses, where customer feedback plays a big role and controlling the quality of services provided by franchisees is quite difficult.
Limitations in business expansion and development. Often a franchise provides for exclusive dealership of the franchisee in the territory assigned to it. If the representative is weak, the franchisor has no way to improve the situation and transfer the business to other hands before the end of the contract.
Risks associated with the disclosure of trade secrets or theft of intellectual property. There is always a risk that unscrupulous franchisees will use the company’s exclusive developments after the end of cooperation, creating a competitor firm, or simply “leak” trade secrets.
