If you are thinking of investing in the commercialization of products with a franchiser, it is important that you first know the benefits and disadvantages of setting up a franchise. Although you should not lose sight of the fact that no undertaking is easy from the beginning and that, to stabilize it, a large percentage of sales is needed to return the commission agreed with the franchisor, as well as to be left with its own profit.
If you do not understand well what we mean, let’s know the details about this interesting enterprise, besides the benefits and disadvantages of setting up a franchise.
What is a franchise?
By means of the franchise a contract is established between the franchiser and the franchisee, where a commercial relation is carried out that contributes income to both parts.
Within this agreement, the franchiser will always take a commission of profits because the entrepreneur will be commercializing with the products of the firm.
This firm chosen by the franchisee generally has an established recognition in the market, so it establishes a type of enterprise called know-how in which both parties complement each other in different elements: technical support, experience and commercial validity in the market.
Types of franchises
When a commercial contract is established between the franchisor and the franchisee, there are several types of businesses that can be reached through that relationship. It will all depend on what objectives both parties are requiring.
In this type of franchises, the marketing rights of the brand or product are granted in part, which may be manufactured by a third party or by the franchiser.
Industrial. By means of this type of undertaking, the rights to market and manufacture the franchiser’s products are transferred. In that sense, a different contract is established where there is an intercalation between franchise and license.
Through the type of service franchise, the franchisor’s know-how plays an important role, so that an idea is given to the franchisee and this is developed by him/her within the business.
Benefits of setting up a franchise
Below, we tell you the main advantages of setting up a franchise.
The main problems when setting up a franchise are the initial investment and the search for financing, since entrepreneurs cannot easily obtain a credit or loan on their own.
But thanks to the commercial alliance with a recognized brand, this can facilitate the path towards a financial agreement.
Less loss (no lossless!)
At the time of investing capital in a franchise there is less risk of loss because it is accompanied by the guardianship of a previously established and profitable business in the market.
If you want to know about other experiences under the same franchise, we suggest you to establish a direct contact with other franchisees from different areas.
Profitability in the market
This benefit goes hand in hand with the other two mentioned, since the brand or product enjoys a proven profitability in business to which you must take full advantage. The importance lies in that over time you generate significant income so that the marketing of the various products is not lost. One way to achieve this, at present, is by having an eye-catching promotion in digital media such as social networks. However, do not saturate your customers with advertising, also create organic content.
Recognition of the firm
The brand has a stipulated re-commendation, which will not only ease the path to financing, but also provide them with access to large-scale economies.
This means that a harmonious coexistence with the firm’s approved suppliers will be provided, thus providing better and much easier purchasing conditions.
Disadvantages of opening a franchise
In this post we want to discuss the benefits and drawbacks of setting up a franchise and, therefore, below we will talk about its main disadvantages.
As in any enterprise, the investment will be high at the beginning, especially when the contract with the network is closed. Similarly, if you do not get substantial funding you will need to have a fund with which to respond to the additional costs of such integration: advertising, suppliers among others.
Loss of independence
The franchisee responds to a previously recognized brand, so it does not have a real independence within the market. Part of the success within the franchise is attributed to the integration into the firm’s network.
Limitation in business
Within this contractual modality there are several limitations stipulated from the moment that an agreement is reached. For example, the franchisee has a restrictive number of products to trade with and certain exclusions are kept by the franchisor.
Also, the entrepreneur will never be the owner of the brand, which implies some inconveniences when it comes to changing elements, selling or even transferring the franchise.
Conclusions about the benefits and disadvantages of setting up a franchise
When one has in mind to mount a franchise, it is necessary that the entrepreneur knows in detail all the implications of this modality as its types, benefits and disadvantages.
In that sense, the franchisee will be able to have clear ideas when he is going to make an agreement, foreseeing which are the risks and possible contributions in the long term.
Franchises are a very profitable form of business and, thanks to the appropriate use of networks and globalization, many enterprises have managed to reach various markets.