What do you think are the advantages/disadvantages of a franchise contract ?

Advantages of being a franchisee

In terms of a definition, franchising is the practice of using a firm’s successful business model to run smaller sub businesses. The obvious advantage for a franchisee is that they are able to use a well-established and proven to be successful business model, including the brand name, the branding, the marketing and advertising, the price structure and so on, in order to run their own business and generate their own profits. A large amount of risk is therefore eliminated.

In addition to having the foundations of a business already laid out, franchisee’s will also save on costs, for example on advertising and marketing, and in most cases they will benefit from a number of other aspects specific to the industry, in our case this includes full car insurance, our contacts, we regularly provide our instructors with new pupils and our online system which can be used for a number of functions such as content for lessons and as a diary. Franchisees therefore have the freedom and satisfaction of being their own boss but also benefit from being part of a large organisation, using the national branding and having customers channelled in their direction.

Disadvantages of being a franchisee

For some people, having to pay part of their profits to a franchisor would be a disadvantage, however for the safety and security of being part of a large organisation with guaranteed work coming in your direction, others would be more than happy to pay this price.

In order to maintain consistency throughout the brand, franchisors may set down certain rules and regulations. Some people may see this as a disadvantage too.

Advantages of being a franchisor

The main advantage to the franchise business model is that although franchisees are ultimately working for the brand, they’re not a fixed cost to the business. Instead they are partners and this reduces the company’s costs heavily.

Franchising also allows for the company to grow rapidly and expand in to other areas of the country that they otherwise may not have. Franchisees generally do the leg work to source out places that they feel will be a success, again saving the company time and money.

Disadvantages of being a franchisor

The biggest disadvantage of the franchise business model however, is that a number of people working for the brand are not employees of the brand directly. This can be tricky when talking to customers, in our case pupils learning to drive, or when dealing with customer service enquiries as it is hard to control exactly what sort of service they receive. You therefore have to place a large amount of trust in your franchisees as they are in the spotlight and the brands reputation is at risk. This is what makes the model the most challenging.

Mentioning royality fees in the contract is an advantage

There are two looks for this question, first you like Franchisor and second Franchisee Advantages for Franchisor: fast growing market, focus on brand and marketing, lower capex, 

Disadvantages for Franchisor: business not fully under control, risk of lower standards, 

Advantages for Franchisee: Brand Manual, help with operations, training, marketing,  get experiences from franchisor.

Disadvantages: Risk capex, have to respect a rules of brand, brand failure is also his failure even he works very well.

Of course there are many several positive and negative things.