A franchise is a form of business model in which a company (the franchiser) lends its business concept and brand to one or more other companies (franchisees) for a consideration.
The benefits for the franchiser, that is, the one who chooses to lend his brand and business idea, is that the concept can be spread very quickly by lending it to other parties. It can therefore be a way to capitalize on the idea and the brand that you already built up without really having to do so much more yourself. Therefore, sometimes this business model is used as a marketing tool by companies wishing to spread their brand to several sites.
Benefits for the franchisee
The advantage for the franchisee, that is, the one who chooses to borrow someone else’s business idea and brand is that there is already a built-up brand that you can in turn capitalize on. One can therefore get an extra boost in the start-up of their company by that the brand may already be recognized.
Disadvantages for the franchiser
The disadvantages for the franchiser, however, may be that you no longer have as good control over your brand if you lend it to other parties. For example, one might encounter a franchisee running the business in a bad way and thus creating a bad reputation for the brand, which in turn can adversely affect the franchiser. It is therefore important to sign clear and precise agreements clarifying how to deal with situations that may arise.
Disadvantages for the franchisee
The same really applies to the franchisee who also becomes dependent on how it goes for the brand at large. The agreement may also contain many rules that limit the franchisee in various decisions, which by some entrepreneurs may feel boring. Sometimes you also have joint marketing and purchase of store materials such as bags, shelves etc.there are more frames to stay within as a franchisee compared to if you were to start your own business with your own business idea and brand. In addition, you also need to pay a compensation for the satisfaction of the business idea and the brand so you have to weigh the pros and cons between each other before making a decision.
In summary, however, it can be seen that the model works very well for many companies and it is a good option for those who want to start their own but still feel like part of a larger company with some security.
How franchises work in practice?
Exactly how it works between a franchiser and franchisee depends on how the agreement between them looks. Most often, however, you work towards common goals but are legally independent. The franchisee is also responsible for the day to day running of the business and its performance.
As we mentioned earlier, one can sometimes have common marketing strategies, commodity purchasing and quality control, etc. while these activities are sometimes managed entirely by the franchiser.