Franchising
That coffee chain in every town is often a franchise. Learn how franchising works, what the franchisor and franchisee each give and gain, and how to weigh it up for a real business.
Use it, the way the marks are given
Free interactive practice at using the material, which is what the marks are for.
Start revising freeWhat you'll cover
The shop on every high street
That coffee chain with branches in every town is often a franchise. One company owns the brand, and local owners pay to run their own branch of it. This module looks at how franchising works, and who gains and who loses from it.
Franchisor and franchisee
Four words unlock this topic:
Who owns the brand?
In a franchise, who owns the brand and the way the business is run?
- The franchisor
- The franchisee
- The customer
- The government
Two sides of a franchise
A franchise is a deal between two sides.
Match the term
- Franchise
- Franchisor
- Franchisee
- Royalty
- A licence to trade under an established brand
- The company that owns the brand and grants it
- The person who pays to run a branch
- A regular payment based on how much the branch sells
The deal in a nutshell
The franchisee gets a proven brand, training and support, which lowers the risk of failing. In return the franchisee pays an initial fee to join and ongoing royalties from sales, and must follow the rules the franchisor sets.
Open a franchise
Put the steps of opening a franchise branch in a sensible order.
- Choose a franchisor with a brand you believe in
- Pay the initial fee to join the franchise
- Complete the training the franchisor provides
- Open your branch and start trading
- Pay ongoing royalties from your sales
Perks for the franchisee
Which THREE are advantages for the FRANCHISEE?
- Starts with a brand customers already trust
- Gets training and support from the franchisor
- Finds it easier to get a bank loan
- Keeps all of the profit with no fees
- Can change the whole business however they like
Work out the royalty
A franchisee pays a royalty of 5 percent on sales. In one month the branch sells 40000 pounds of goods. How much royalty is paid that month, in pounds? Find 5 percent of the sales.
Complete the idea
A franchise lets a _____ trade under an established brand owned by the _____. To join, the franchisee pays an initial _____, and then pays ongoing _____ based on sales. The big advantage is starting with a brand that customers already _____.
True or not?
Tap the TWO statements that are TRUE about franchising.
- The franchisee pays fees and royalties to the franchisor.
- A franchise lowers the risk of failing because the brand is already known.
- The franchisee owns the brand and can rename it.
- Franchisees keep all the profit and pay nothing.
- A franchisor has no interest in how a branch is run.
Advantage or drawback?
- Starts with a brand customers already trust
- Must pay royalties and follow strict rules
- Can expand quickly without funding every branch
- A poorly run branch can harm the whole brand
- Advantage for the franchisee
- Disadvantage for the franchisee
- Advantage for the franchisor
- Disadvantage for the franchisor
Franchise or not?
Use what you know to advise in each case.
- Priya wants to open a cafe but has never run a business. What is a key benefit of buying a franchise for her?
- A well-known burger chain wants to grow into many towns quickly without paying for every new shop. What should it do?
- Which is a real drawback Priya should accept as a franchisee?
Should they franchise?
A baker with one successful shop is thinking about growing by selling franchises. Evaluate whether franchising is a good choice for this business.
- Explain what the baker would be offering franchisees
- Give one advantage of franchising for the baker
- Give one drawback the baker should think about
- Reach a judgement about whether to franchise