Learn: Franchising as a Growth Method

Welcome!Building on your understanding of business growth strategies, today we'll explore franchising as a growth method. You'll learn how franchising works, its benefits and drawbacks, and how it compares to other methods of growth.

What is Franchising?Franchising is a growth method where a business (the franchisor) allows others (franchisees) to operate under its brand name and business model. Franchisees pay fees to the franchisor and often share profits, but benefit from an established brand and operational support. This method is important because it allows businesses to expand rapidly with lower financial risk.

How Franchising WorksThe franchisor provides franchisees with the rights to use its brand, training, and support. In exchange, franchisees pay initial fees and ongoing royalties. Franchisees are responsible for the day-to-day management of their individual outlets, while the franchisor maintains control of the overall brand and quality standards.

Advantages of FranchisingFranchising benefits franchisors by allowing them to expand their business with lower financial risk, as franchisees invest their own money into setting up outlets. Franchisees benefit from operating under a recognised brand and receiving support, making it easier to attract customers and manage operations.

Disadvantages of FranchisingFranchisors may face challenges in maintaining control and quality across franchise outlets. Franchisees may feel restricted by the franchisor's rules and might struggle with high franchise fees or royalties that reduce their profits.

Franchising vs Other Growth MethodsCompared to organic growth, franchising allows faster expansion with less financial investment from the business owner. Unlike mergers or takeovers, franchising does not involve acquiring other businesses but relies on franchisees to grow the brand.

Review Time!Great work! You've learned about franchising, its benefits, drawbacks, and how it compares to other growth methods. Let's test your understanding with a few questions.