Franchise Glossary

Advantages and disadvantages for franchisees

A franchisee is an entrepreneur who has purchased a licence from a franchisor in order to be able to run a business according to a certain franchise concept. The fees and costs which a franchisee must pay to the franchisor for purchasing the franchise licence are stipulated in a franchise agreement. More often than not, franchisees must pay one-off payments as well as regular payments. Besides being given the rights to use a certain business idea, franchisees normally receive wide and varied support from franchisors such as in the area of marketing, induction and further training courses or in the area of running a business. If they join a well established franchise, then franchisees can also profit from the franchise’s well-known name.

Ideally, such a partnership between a franchisee and a franchisor should be advantageous for both parties. Depending on the point of view of the franchisee, however, a franchise partnership can also have disadvantages as can be seen below:

The following can be seen as being an advantage for franchisees:

  • Franchisees can use a proven or at least well developed business concept and so speed up the business start-up process.
  • Franchisees can also profit from a franchise’s well-known name, if they join a well established franchise.
  • Franchisees are often given support from the franchisor which covers a wide area and which someone setting up on their own would find very difficult to afford.
  • Franchisees are generally given territorial protection thus reducing the competition they have to face on the local or regional market.
  • Franchisees are given direct or indirect support from the franchisor for financing the business start-up.
  • Franchisees can profit from the size of the overall franchise network and from the market and capital strength that results from this network, for example when purchasing goods, for advertising or for the further development of the franchise concept.

The following can be seen as disadvantages for franchisees:

  • Franchisees are independent entrepreneurs but are not completely free to make certain decisions, for example when it comes to marketing measures or deciding what products to sell
  • Franchisees must purchase the advantages of franchising by paying regular payments to the franchisor.
  • The reputation of a franchise may suffer from the negative behaviour of another franchisee or of the franchisor.

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