Franchise Glossary

Advantages and disadvantages for franchisors

A franchisor is a company that grants a franchisee a licence to use a fully developed business model (franchise concept). A franchise network is created as a result of the partnership built up between a franchisor and his franchisees. The franchisor receives a certain number of payments for allowing the franchisees to use his business model. The franchisor generally supports the franchisees by helping them to start up their new franchise business as well as to assist them with the running of the everyday business. Examples of franchisee support provided by the franchisor are, e.g. helping to find a suitable location, financing as well as marketing, purchasing goods and general business management matters. Many franchisors often run induction courses as well as further training courses for their franchisees and organize franchisee meetings to enable the franchisees to get to know each other and exchange experiences. The relationship between the franchisor and the franchisee is regulated by a franchise agreement.

Entering into a partnership with a franchisee can bring about a number of advantages for franchisors including:

  • By finding new franchisees, a franchisor is able to open up new locations at relatively low cost, as the franchisees must normally finance the business start-up themselves and they alone are liable for their business
  • By finding new franchisees, franchisors can generally expand at a much faster rate than other sales forms
  • For the most part, a franchisor can expect total commitment from their franchisees as they alone are responsible for the success of their franchise business

The following can be seen as disadvantages for franchisors:

  • Franchisors may earn less from a franchised business than they would from a company-owned location
  • The reputation of a franchisor may suffer from the negative behaviour of just one franchisee
  • The actual influence that a franchisor has over his franchisees is limited

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