What are the Pros and Cons of Franchising?

21 February 2019

Franchising is a type of business where the franchisor of the product or service distributes it via affiliated dealers called franchisees. It is one of the most successful and well-accepted business paths, especially for first-timers.

Franchising is a complicated system involving a lot of people, which is why it has several pros and cons.

Advantages: The Pros of Franchising

Here are a few advantages of franchising.

01. Cost-effective Operations

If the franchisor contracts for supplies in bulk on behalf of franchisees, then overall cost comes down drastically.

02. Higher Success rate

When you open an established franchise outlet, your chances of success is higher than an independent business, since you inherit a system that is already running successfully in other outlet.

03. Minimal Risk

The franchisor has already put in a lot of effort in promoting and establishing the business brand. That minimizes the risk of failure of franchises.

04. Easy Branding

While the brand is well-promoted and advertised, the franchisees will not have to struggle with building the outlet’s image. The branding cost is usually distributed between the franchisor and franchisees, bring down marketing costs even further.

05. Training & Marketing Assistance

In most franchise business groups, franchisees will be provided with initial training and marketing assistance. You are never on your own.

Disadvantages: The cons of Franchising

Here are a few disadvantages of franchising.

01. Loss of Control & Freedom

Since the franchise comes with its own set of rules and regulations, you are expected to follow it. You can hardly take any important or independent decision without franchisor consent.

02. Initial Investment is Huge

Purchasing a well-established franchise is likely to be expensive.

03. Ongoing Costs

Apart from your franchise fee, you may also need to pay a percentage of your revenue to the franchisor regularly – either monthly, quarterly, or annually.

04. Negative Publicity

Being in a franchise system, if the franchisor or one of the franchisees attracts negative publicity, then the entire brand will take a hit.

For more information on the advantages and disadvantages of franchising, Contact Us.

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What are the Pros and Cons of Franchising?

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