Franchisors & franchisees

Question 1

what is a franchise

Answer 1

the right given by one business to another to sell goods or services using its name.

Question 2

what is a Franchisor

Answer 2

The business that gives franchisees the right to sell its product, in return for an initial fee and a royalty payment.

Question 3

whats a franchisee

Answer 3

A business which agrees to manufacture, distribute or provide a branded product.

Question 4

What does the franchisor provide?

Answer 4

Training;
Equipment;
Materials to use in the production of a good or service;
Advertising/ publicity materials;
Back up services e.g. advice, loans, insurance.
A brand name;
Exclusive area i.e. you will not find two McDonalds on the same street, competing with one another;
Branded goods & services.

Question 5

The cost to the franchisee

Answer 5

Franchisors often charge a initial fee at the start of the franchise agreement to cover the costs of setting up the new branch.
Then the franchisee often pays a monthly royalty e.g. 10% of the monthly turnover.

Question 6

ADVANTAGES OF BENING A FRANCHISEE

Answer 6

More customers for the franchisee because of well known name e.g. McDonalds

Receives advice and training from franchisor

National advertising paid for by franchisor

Franchisor provides the goods to sell, so no need to find suppliers

Chance of failure is lower because of well known name

Question 7

DISADVANTAGES OF BENING A FRANCHISEE

Answer 7

Expensive set up cost paid to Franchisor to join franchise

Royalties continue to be paid by the franchisee = additional cost that does not end

Raw materials (e.g. bread rolls) bought from franchisor are more expensive than other suppliers

Franchisee has little influence over the goods sold, design of outlet

Franchisee may suffer from the bad reputation of other franchisees