Franchising is an arrangement in which the franchisor gives the franchisee the right to
distribute and sell the franchisor’s goods or services and use its business name and business
model for a specified period, and possibly covering a geographical area.
Example: Subway, KFC
Types of Franchises:
• Business format franchises
• Product franchises
• Manufacturing franchises
Franchisor: The person that authorizes another to sell or distribute its goods or services in
a certain area
Franchisee: The Person who buys the franchisee. This person is obliged to follow all the
rules of franchisor.
3 Main models of Franchise
• Product distribution model- It is similar to supplier dealer relationship. It merely sells
the products of the franchiser.
• Business format franchising– In it not only the products and services of the franchisor
are sold but his format and procedure of conducting is adopted. Example; subway.
• Management franchise- It is a type of service agreement in which management,
expertise and procedure of conducting is same.
Disadvantages of Franchise to the Franchisee
• The franchisee may not have complete control on his business
• He will be bound to pay ongoing royalties and advertising fees.
• He’s ought to balance the restrictions and support provided by the franchisor.
• The management assistance provided by the franchisor will help my business to
improve its services.