Advantages and Disadvantages of Franchise


Starting a business is made easier by franchising since the franchisee receives a business model that has already been tried in the market and proven to operate. A franchise is therefore considerably more secure than trying to create a company from scratch.

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A franchisee lowers the risk of a company failing.

The benefit of being known comes with a well-established franchise. Many start-up companies struggle financially during the first few years after they have been operational. This suffering might be reduced to days or weeks if one uses the tried-and-true franchise.

The franchisor’s research and development to improve the product is passed on to the franchisee. The franchisee has the exclusive right to franchise within a specific geographic area.


Instead of appreciating their creativity, franchisees are restricted to work for someone else’s company. They must follow the franchisor’s business format.

Franchisees are also subject to a variety of limitations. Restrictions might be restricted to a certain product line or geographic region.

If a franchisee wants to sell or pass on their business to a family member, the franchisor must give first permission.

Even though a franchisee may do a lot to improve the brand recognition of their firm, that goodwill belongs to the franchisor. If the franchisor fails, the franchisee might also fail.

Franchises are becoming increasingly popular among entrepreneurs who want to start a small business. A wide range of sectors has many sorts of franchising schemes to choose from. If an investor wants to create a new franchise, he or she should determine in advance which industry he or she wants to be engaged in, how much money one can contribute, and how much time one has available to spend personally. Types of the franchise are as follows:

Trade Franchise: As far as franchising goes, this is the first and most basic of all. Dealers were granted the authority to distribute a manufacturer’s products under this agreement. The dealer must pay a fee to the manufacturer to have the right to sell its branded products to the consumers. The Singer Sewing Machine Company employed product franchising to sell their sewing machines in the 1800s, possibly for the first time. For example: Computer dealers, appliance dealers, etc.

Distribution Franchise: In this type of franchising, a franchisor grants a license to the franchisee to sell certain items using the franchisor’s trademark and brand name. Such franchising is frequently used to promote automobiles (Nissan), soft beverages (Coca-Cola), and home appliances (L.G./ Samsung).

Business format Franchise: Franchisees in the business model operate their businesses under the parent company’s brand and receive the complete, tested system to operate and sell the products or services they offer. The parent firm offers a comprehensive strategy, complete processes, extensive training on nearly every element of the business, and initial and ongoing assistance. As a result of this agreement, a wide range of franchisor services are made available to the franchisee. These services vary from marketing and advertising to strategic planning and training to creating operations manuals and quality-control guidelines.

Currently, this is trending because it is relatively new. Around 34 (
73%) of all franchised businesses in the United States take this form.

Distributorship as Type of Franchise
Franchise’s distribution class includes all subclasses. The supplier provides the distributor the right to distribute their products and/or services under this agreement. In comparison to a franchisee, the supplier is far less involved.

The markup contributes to the distributor’s bottom line. In contrast to a franchise arrangement, where the franchisee must pay to utilize the brand name and resources, the distributor only pays for the goods. The supplier has no stake in the distributor and has no say in how it is operated. Furthermore, there is no sharing of industry expertise or support with running the firm. The distributor has complete control over the success or failure of the company. Important points to remember under distributorship are as follows:

Distributors add margins to pricing, which might be greater than a manufacturer’s price, resulting in higher product prices and a healthy profit margin for the distributor.

The costs charged by distributors are often greater than those charged by agents since distributors handle inventory, issue credit to consumers, and offer more services than agents.

Distributors have a wide range of items to market. Their attention span is shorter. It is also called as distributor agreement of the franchise agreement.

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