Both the franchisor as well as the franchisee are independent entrepreneurs. The bilateral interests are captured in the franchise contract. Through a division of tasks both the franchisee as well as the franchisor can achieve the maximum return with their venture.

The franchisees are, in their position as independent entrepreneurs, completely responsible for their own business. Motivation and personal effort is therefore valued highly within franchises.

The professional approach towards the market means franchisees often realise higher revenues and returns than individually operating entrepreneurs. The franchisee can after all benefit from the professional marketing and all the experience within the cooperation of the franchisor. A large scale provides cost benefits. The high volumes a franchise buys often leads to favourable conditions with suppliers.

Staffing is a responsibility for the franchisee. When employees are ill, for example, he will have to take care of replacements himself. Furthermore a franchise is less cyclical: wages and salaries are a lot lower, which means pay rises have less effect on the overall business' results.

The recognisable appearance is one of the most important characteristics of a modern chain of stores. The franchisor is responsible for the appearance (both online as well as offline), so in short everything which sets the franchise apart from other parties in the market.

To be be effective and competitive in the market, central guidance is needed. Motivated franchisees usually require less attention from the management than a regular manager of a branch. This results in lower overhead costs, less area managers, smaller (or no) human resources department and so on.

Disadvantages of franchising

Next to the many advantages of franchising, there are also a number of disadvantages.

The franchisor has less influence in the region compared to a situation where the franchisees would be his own personnel. The franchisor creates the concept; the franchisor invests on his own and is, within the limits of the franchise formula, independent. The franchisee, in turn, has to stay within the limits of the franchise formula set by the franchisor.

Important changes in the franchise formula require commitment from the franchisees. This requires consultation with franchisees.

Every new location / new entrepreneur is a starting venture with the corresponding start-up risks. Even through franchisees in general perform better than independent entrepreneurs, there is always some level of insecurity for the franchisor and franchisee whether the next establishment will also be succesful.

Read on about franchisefees.