Franchises

Question 1

What is a franchise?

Answer 1

This is when a franchisor offers the franchisee the opportunity to use it’s products, services and logo, usually in a defined location, in return for an initial fee and continuing royalty payments

Question 2

What is a royalty payment?

Answer 2

A payment made to the franchiser based on the sales revenue or profit of the franchise

Question 3

What are the advantages of a franchise for the franchisee?

Answer 3

Franchiser provides marketing
Provided with successful products to sell
Minimal risk
Designated area away from other franchises
Franchiser will OFTEN pay for staff training

Question 4

What are the disadvantages of a franchise for the franchisee?

Answer 4

They have to pay an initial fee
Have to meet required standards 
No choice on sales
Has to impress the franchiser
Has to make annual royalty payments 
All supplies must be bought from franchiser at a set price

Question 5

What are the advantages of a franchise for the franchiser?

Answer 5

Little investment needed to expand
Franchises can be carefully selected to maximise sales
The franchiser sets all prices including buying stock for the franchisee

Question 6

What are the disadvantages of a franchise for the franchiser?

Answer 6

Control issues if a franchise performs badly
Cost of supporting a franchisee can be high
Conflicts can lead to court action, incurring additional costs
Can be conflicts if there are disagreements between franchiser and franchisee