Advantages and Disadvantages of Franchising
Advantages to Franchisors
Franchising enables business expansion without incurring additional costs since the franchise covers selling expenses. It also helps build brand goodwill, increases brand awareness, and expands the customer base.
Advantages to Franchisees
By obtaining a franchise license, there is no need for the franchisee to establish their own brand name. They can leverage the franchisor's established name and commence operations in various regions. Additionally, the franchisor provides guidance and resources without the franchisee incurring extra expenses. The franchisee may be granted exclusive rights to sell franchisor's products within a specific area.
Disadvantages to Franchisors
The most significant disadvantage for the franchisor is the lack of direct control over sales quality. Additionally, there is a risk of the franchisee sharing the franchisor's proprietary information. Furthermore, the franchisor bears the ongoing expenses of providing services, assistance, and training.
Disadvantages to Franchisees
Franchisees do not have complete control over their business as they must adhere to the franchisor's rules and regulations at all times. They are also required to pay ongoing royalties to the franchisor. In certain cases, they may be obligated to share revenues with the franchisor.