In a growing and competitive market, there are some crucial decisions every business owner must make. For instance, they will have to determine business entity, ownership, the role of business, and so on.
However, one of the most important decisions business owners should make whether they want to own all of the units directly, or they want to allow investors to buy some percentage. To put it simply, would you want to become a franchise or a chain?
We know these terms are a bit confusing, but in this article, we will help you understand the difference between franchise vs. chain.
When it comes to this type of business ownership, the franchise involves selling some business rights to a third party. In this case, you can sell your logo, business name, or business model. On the other hand, the franchise requires that the business model remains the same, as well as methods, pricing, and different specified factors.
If a person wants to invest in a franchise, then the franchisee must pay the initial fee, which covers the rights of the business. However, once the business begins, a franchiser receives a royalty fee. Based on the monthly, quarterly, or annual sales, this fee is calculated. But, it all depends on the terms and conditions you established initially.
Therefore, if you are thinking about investing money into a franchise system, then here are a couple of things you should consider.
- Is the brand reputable?
- Can you train the management team?
- Does it offer initial and ongoing advertising and marketing strategies?
- Do they provide high-quality services and products?
- Can you count on ongoing general support?
On the other hand, you should also be familiar with the following advantages and the things that could possibly bring you the profit.
- This is a less risky investment.
- You can count on ongoing support via continuous training, advertising, marketing, and buying equipment.
- A reputable franchise increases brand recognition while reducing your effort on brand recognition.
- You don’t have to focus on development and research only since most of the burden is passed to the franchise.
- Banks tend to offer financial support to reputable franchises.
Now, let’s discuss the disadvantages.
- This franchising application process can be long and tedious, while requirements are quite extensive.
- If a franchiser is facing some difficulties, then they are directly passed to a franchise.
- This is not an independent business, but it’s controlled by the parties involved in the franchise.
- Fees are high.
- You have to divide profit among franchise and franchisees.
When it comes to chain, this business model involves one store or more of them, and they all have the same owner. Additionally, they sell identical products, carry the same name, and follow the same rules and policies. In this case, the chain has control of each and every store.
If you ever decide to invest in a chain, then you should know the advantages.
- The owner retains all rights.
- You don’t need to advertise each brand individually.
- You can discover which branch is unprofitable, and then either close it or transfer it to another location.
- There is no intermediary since chains retain all profit.
- You can form prices independently.
On the other hand, chains also come with a couple of disadvantages you should pay attention to.
- It might be challenging for the owner to control all the branches.
- You can’t pass the risks to the investors considering you are the owner.
- It is rather expensive to run and manage chain stores.
What similarities do they have?
- They both want to maximize profit.
- Chain and franchise follow the set of policies and procedures.