THE BENEFITS OF FRANCHISING
Capital
The franchisor’s capital requirements will be lower because the franchisees provide the capital to open each franchised outlet.
Motivated and Effective Management
The local management of each franchised unit will be highly motivated and very effective. They treat the franchise units as their own and that will usually lead to higher sales and profit levels.
Fewer Employees
The number of employees which a franchisor needs to operate a franchise network is much smaller than they would need to run a network of company owned units.
Speed of Growth
The franchise network can grow as fast as the franchisor can develop its infrastructure to recruit, train and support its franchisees.
Reduced Involvement in Day-to-Day Operations
The franchisor will not be involved in the day-to-day operations of each franchised outlet.
Limited Risks and Liability
The franchisor will not risk its capital and will not have to sign lease agreements, employment agreements, etc.
Increasing Brand Equity
Levereging off the assets of franchisees helps franchisors grow their market share and brand equity more quickly and effectively.
Advertising and Promotion
Franchisor will reach the target customer more effectively through co-operative advertising and promotion initiatives.
Customer Loyalty
Franchisors use the power of franchising as a system to build customer loyalty- to attract more customers and to keep them.
International Expansion
International expansion is easier and faster, since the franchisee posesses the local market knowledge.
THE DISADVANTAGES OF FRANCHISING
At first, it might seem that franchising has only benefits, however, there are some drawbacks to be considered as well.
- Developing a franchise network can be expensive, in terms of management time and initial capital outlay.
- Your investment cannot be recovered until franchisees are appointed and you start to receive fees from them.
- As your franchisees are independent business people, they might sometimes disregard their obligations related to the franchise system.
There are certain risks involved at each stage of franchising, therefore, developing a successful franchise requires careful planning, continuous monitoring and support from professionals.