Advantages and disadvantages for the franchisee

Understand the differences with respect to a traditional business
A franchisee is a person or company to which a franchise is granted under a set of agreed terms and conditions. The following list shows some key advantages of being a franchisee: 
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  • You can benefit from the franchise experience while avoiding the risks and work involved in starting up a small business.
  • Brand reputation: Belonging to a well-known chain, easily identified by the consumer.
  • Generation of economies of scale: One of the main advantages are the low prices that can be obtained thanks to the high purchasing volume of the franchisor's head office.
  • Exclusive product.
  • Assistance, supervision, training, management system, market research studies, etc.
  • Marketing: Savings on marketing campaigns and greater media impact.


  • Payment of a front-end fee for use of the franchise brand and transmission of know-how, as well as payment of royalties for the ongoing support and advice.
  • No brand ownership: The franchisee may use the brand, but the brand belongs to the franchisor.
  • Limited decision-making power: The franchisee must adhere to the franchisor's standards and procedures.
  • The franchisor must be allowed to supervise and control your business permanently.
  • Franchising contracts tend to have a short duration (5 years), which can lead to certain problems.

Differences with respect to a traditional business

Although it is one of the most dynamic and financially affordable ways to grow a business, expansion through franchising involves the granting of a contract specifying the terms and conditions for the transfer of the brand user rights, the availability and transmission of the company's unique expertise, and the initial and ongoing technical and sales assistance provided to the franchisee as a business partner.

Payments to be made:

  • Front-end fee: This fee also covers the franchisee's use rights for the brand and ability to benefit from and apply the know-how passed on by the franchisor. This tends to be dedicated to:
    • A front-end fee that covers a series of expenses borne by the franchisor for each of its franchisees.
    • Expenses generated by expansion of the franchising.
    • The initial training provided by the franchisor and the use of the franchisor's facilities for the training sessions.
    • Delivery of a welcome pack for joining the network (merchandise for the business location). 
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  • Operating Royalty: For the services provided by the head office. This royalty may be:
    • Fixed.
    • A percentage of sales.
    • Mixed.
    • None (incl. in product margin) 
  • Marketing Royalty: Amount that the franchisee must pay to the head office for its promotional and communication actions at the national level.
  • Marketing Fund: An amount that the franchisee must invest for promotional and communication actions at the local scale.
  • Contractual Obligations: Exclusivity of the product/service, sales method, authorized suppliers, remodeling of the location, etc.
  • Contract Duration: Will depend upon the return on investment.
    • i.e.: return on investment > 2.5 years > 5-year contract 
  • Renewal: Implicit vs. automatic.
  • Territorial exclusivity:
    • Area of exclusivity.
    • Area of influence.
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