Franchise business is one where an owner gives the right to others to sell products of his brand in various regions to expand his business.
The person granting permission to carry out the sale of his products is called a franchise, and one who acquires the permission (license) to sell the products is called a franchisee.
There are many franchise businesses globally, and some examples are Mac Donalds, Bata, Woodland, Nike, etc.
We can notice that there are Mac Donald restaurants in many cities yet the menu or food items served remain of the same quality and formula (taste).
But the owner of each restaurant is different. Yet, they have got a license from the brand owner of Mac Donald to carry on business using the brand name (label) and also the formula in food item preparation. Hence we notice the label or logo on the restaurant to be of the same design everywhere.
Similarly, in the shoe and dress category, like woodlands, Nike, etc. we can find shops or showrooms in almost every city carrying the brand logo. The owners are independent but have the right to sell only the products of that brand. The products are manufactured by the actual owner (franchiser) of the brand name and supplied to the independent shop keepers (franchisees).
The franchisee makes a good margin but pays a specific portion of his income to the franchiser to own the franchise license.
Franchise business its pros and cons:
The pros of being a franchisee:
- Since he sells branded products, it is easy to sell the product as there is a good reputation.
- The franchiser carries out intense advertisement is intensely carried out by the franchiser.
- No hassle or worry about the quality of the product he sells. Since the company provides a warranty for the products sold.
Cons of being a franchisee:
- It can sell only one brand of products. Limiting sales.
- Has to abide by the rules of the franchiser and has to provide service as per the agreements.
- Has to part some portion of his income to the franchiser.
Pros to the Franchiser:
- Easy expansion of his business and brand and thereby, income.
- Minimize the risks of loss as he is not investing capital in other locations where products are sold.
- Minimal workload as multiple people are involved in sales turnover.
- Royalty to his children from his brand.