Franchising may seem to be the ideal solution for any business. As you will learn in this article, it may not always be the case. The licensor has built a well-known brand and, together with the corporate’s know-how, passes it on (for a fee) to another entrepreneur – it is, therefore, evident that he wants to protect it. The licensee has to pay a lot of money for the license, and thus his initial concerns are also relevant. So what are the advantages and disadvantages of starting an online franchise?
Advantages for the franchisor (licensor)
It gains a competitive advantage (faster expansion and entry into new or remote markets), thus ensuring stable and quicker sales. The growth of the network makes the offered services and products faster and easier to reach for the customer. A significant reduction in setting up additional “branches” (payroll and overhead costs, advertising costs) is also not negligible.
The franchising network also helps to have a better bargaining position in the online world.
Disadvantages for the franchisor
There is a risk that the franchisee will not understand the partnership, behave like an individual entrepreneur, and will start to bring elements into the business that are not the subject of the contract and thus may damage the brand.
After training and initial success, the franchise partner may feel independent of the franchisor and try to become separate from the concept provider.
Over time, a successful partner may feel that the amount of the monthly fee (royalty) is high for him, and he will try to hide part of his income to reduce the turnover fee. (This is one of the reasons why the franchise agreement must also address penalties and fines for non-compliance.) The franchisee is not an employee, and therefore it is more difficult to control his activities.
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Advantages for the franchisee (licensee)
The franchisee has relative business independence and has more motivation than if he were a branch office employee. It trades with an established brand and a proven concept in practice, which significantly reduces the risk of failure.
He receives training and ongoing support from the franchisor and a territorial guarantee and can exchange experiences with other franchise partners of the company. He has access to inexpensive raw materials and is assisted by nationwide advertising and brand support from the franchisor. The master franchisee has (mostly) the right to further expand his network, making him a franchisor for a given country or region – which, of course, results in further profits for both the franchise and also as an advantage for you.
Disadvantages for the franchisee
They must pay all the fees included in the contract (license entry price, royalty – monthly payments, advertising payments, etc.) and bear the franchisor’s regular checks. There is also a danger that the franchisor will agree with incorrect partners who will spoil the brand name by their approach and non-compliance with the contractual conditions. There is also a risk that the franchisor will not comply with the contractual requirements in training and support (technical or marketing).
A franchise advisor knows the needs of the franchisor perfectly and listens very carefully to the franchisor’s expectations. Through patience, experience, and professional advice, he can find the golden mean for the satisfaction of both parties. In conclusion, these are the key advantages and disadvantages of starting an online franchise.