How profitable is a franchise business?

We will weigh the main advantages and disadvantages of creating your business through the purchase of the right to use someone else’s brand.

Start from scratch or buy a ready business?

Many beginning entrepreneurs have heard the word “franchise”, but still do not know what it is. A franchise is called a special form of agreement, when one party (franchisor) grants the other party (franchisee) the absolute right to act on the market on its own behalf.

In this case, the latter is allowed to use the trademarks and / or brands of the franchisor. In other words, a franchise is a lease by an entrepreneur of a trademark for selling its own goods and services. Consider how profitable the business is for a franchise, determining its pros and cons.

Pros of the franchise

franchise business
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One of the main advantages is the recognition of the brand, which was leased, and it may not necessarily be a world-famous brand. There are many franchisors who successfully work within the same country or region.

The purchase of a franchise is a synonym for the high speed of the promotion of your own business. If you open a case from scratch, at first you will have to work on the trust of consumers. Acquiring a ready business, the company begins to make profits almost immediately.

The great experience of the franchisor is invaluable for the entrepreneur, because it will not only represent a well-known brand in the market, but also receive all kinds of assistance in the form of training courses, teaching aids, consultations. It will be easier to solve the issue with advertising.

Having a franchise, the company officially works on behalf of the franchisor in the allotted territory (its boundaries are stipulated in the contract). Therefore, it will not have to be afraid of competitors with a similar license.

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Cons of the franchise

franchise business
Image Source: Google Image

The high cost of the launch package is the most obvious drawback, especially when it comes to the exclusive right to a brand. However, exclusivity has a big plus – an entrepreneur becomes the only legal representative of a popular brand in the region.

The next trouble is that the acquirer of the brand can be placed in a very narrow framework. And this is understandable, because the franchisor wants to develop, and for this it has to comply with certain rules of the market. But such restrictions can simply destroy the entrepreneur’s business.

Complexities sometimes arise in legal relationships. Famous franchisors usually contain a large staff of lawyers. They can draw up such contracts, in which the interests of the junior partner will be met minimally. For a thorough study of documents, a businessman needs to recruit lawyers.

A franchise can become a brake on creative development. For example, if an entrepreneur has a new idea that can significantly develop the business and increase profits, then it cannot always be realized. Some franchisors hinder this, referring to the fact that the franchise is already a ready-made idea, which is already extremely fine-tuned.

Finally, often franchisers insist on buying the right consumables and raw materials only from them or their partners, but not from competitors. It turns out that because of such restrictions, a businessman cannot influence part of its own costs.

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