- A franchise is a chain of shops or restaurants, etc, which is licensed out so that people can copy it
- A franchisee can make an agreement with a franchisor to pay the franchisor for the right to use their business method in a particular location
- The franchisee is the person who pays the franchisor to use the franchise
- The franchisor is the owner of the franchise
- The franchise is the brand and business method the franchisee is asking to copy
Why Make that Deal?
- It is often easier for a person starting a business to create a franchise rather than start something of their own
- The franchisor provides them with help and assistance when running their business
- The business model is well-known and proven to work
- The brand name is recognised, so there are already customers available
- The franchisee gets to use the franchise’s brands and trademarks
- The franchisor already knows suppliers for the franchisee to buy from
- The franchisee gets exclusive rights to use the franchise in that location – there won’t be an identical shop across the street (although there will still be competition!)
- The franchisor takes care of all the advertising, to keep the customers coming!
What’s the Catch?
- You have to pay to use the franchise in the first place… and it can cost quite a bit!
- The franchisor is your boss. They will apply restrictions and tell you what you can and can’t do…
- If the franchisor goes out of business that’s not very good for you…
- The recruitment process has to be thorough, because you can’t give the franchise a bad name!
- You have to share your profits with the franchisor :(
- You have to buy your supplies from where the franchisor says, which might not be cheap
- You can’t sell your shop without the franchisor’s permission, so it can be hard to move on
What’s in it for the Franchisor?
- (Apart from being a control freak)
- More money! Franchisees pay to use the business idea, then share their profits
- Less work! More stores are opened, but the franchisor doesn’t have to worry about running them because there are franchisees to do that
- They get to work on other things, like introducing new products, whilst other people take care of selling them
On the Other Hand…
- Stupid franchisees could ruin the business symbol
- The franchisor may have to give away his private business information to the franchisees, such as the recipe for his chicken poo… erm, chicken wings