Franchising your business can be the key to make it successful on international level if done properly and there are 15 important advantages and disadvantages that requires your immediate attention. Franchising can be tricky as well as challenging at the same time but if you are on the right track, your business will climb the mountains in no time.
Knowing a little about franchising and other types of businesses will be handy before getting into the pros and cons. If you have already read our article on types of business, great, you can skip the next section and directly move to advantages and disadvantages of franchising. Else, you can skim the article quickly or read the next section for brief knowledge about franchising.
Franchise is not a stand-alone form of business but it’s kind of hybrid of 2 or more types of businesses we have discussed.
Understanding franchise business type is quite simple if you know about two parties that are involved. The franchisor and the franchisee. The franchise is owned by the franchisor and franchisor do agreements with the franchisee allowing them (franchisee) to run business under the name of their (franchisor) brand name.
Some franchisors restrict their franchisee to follow the business model and strategies of the company. However, some left it as an open choice for franchisee whether they want to opt their own business plans and strategies. Just like business plan, model and strategies, profit share vary from franchise to franchise.
We have many franchise examples of food, clothing and shoe brands like McDonald, Outfitters and Nike etc. Bigger brands like these three don’t really focus on only one business type i.e. Franchise. They follow hybrid of 2 or 3 business types and sometimes more.
15 Advantages and Disadvantages of Franchising your Business
Initially, there are two things you must need to understand. Franchising a business or buying a franchise from franchisor. It means that either you are the franchisee or you are the franchisor, in both cases, you are doing business. Each of these have their own separate advantages and disadvantages for both Franchisee and Franchisor. If you want to see the advantages and disadvantages of franchise (from franchisee perspective) click here to see more details. Following are the 15 Advantages and Disadvantages of Franchising your Business (franchisor’s perspective).
- The first advantage of franchising your business is that you already got loyal customers and fame. Any new franchise you sell will start giving you profit as you have already build trust among your customers.
- As many franchises your business have, it’s you, the boss. The people remembers the originator and not the owner of every single franchise of your business.
- Franchising often bring more customers in your circle. Customers are your best advertisers, new customers if get satisfied and happy, they will tell 10 or 20 others may be. Your overall business will grow.
- Expanding your business by franchising it is very less risky as compared to starting a new one. You start with an international brand already popular, unlike a new business which is unknown to the world and they hesitate to try or test your products for the first time.
- People already recognizes your business if it’s a brand and when its franchise comes in their area or region. As they are familiar with the brand already, therefore won’t think twice before buying the products.
- The more franchises your business have, the more revenue you will generate. You can either sell your franchise for one big amount or you can sell it on monthly basis or you can share the decided profit or sales percentage.
- You are the boss so you can do things the way you want to. You can restrict franchisee to your given marketing strategies and business plans or you can give them free hand under few limits.
- Franchisor has the authority to not renew the contract once it has ended. Franchisor can either close it or sign a new contract with any other franchisee.
- The biggest disadvantage you can face after franchising your business is the bad customer experience at any of your franchise. As happy customers advertise your customers free of cost. Just like that, on the other hand, they can spread bad reviews and words about your business, especially in this era of social media. For e.g. if a franchise of McDonald doesn’t satisfy their customers. Customers will rarely say that this franchise is bad. They will spread that McDonald doesn’t meet standards it used to meet.
- You need to have lots of managers, directors, supervisors and a CEO as you cannot blindly give away your franchise. There must be a criteria and a team or someone who checks whether the franchisee fulfills your criteria or not. If you are running an international brand, you can have managers’ country wise.
- Your business can flourish but on the same time you put it on stake as franchise can ruin the positive image in the minds of customers.
- The franchisee might not do the advertisement or marketing according to the agreement. It will affect your business in a way that you may have found a better franchisee. No doubt, it will affect the sales of that specific franchise.
- Franchisee has the authority of not renewing his contract.
- Blunders or bad dealing of other franchise with customers in your region can definitely effect your business
- Just like starting a new business, franchising your business can face similar risks so be careful.
Final Thoughts on Franchising your Business
Franchising your business just like every other strategy or plan in business has brighter sides as well as darker sides. Only looking the darker side will affect your success. Yeah, you need to be careful about them but work hard for the brighter sides. Franchising your business allows you to have customers all around the world. Your sales are boosted more than you can even imagine. Your company will become a brand. Each franchise is an advertisement of your brand itself. Finally, you are the boss to decide where to franchise and when to end contract with a franchisee. Be careful, as franchise can both flourish as well as demolish your business.