Which of the following is a disadvantage for the franchiser?

Which of the following is a disadvantage for the franchiser?

• A. Only a share of profits is received rather than all profits.
• B. Location conflicts are always easily resolved.
• C. The franchisee fully funds expansion.
• D. The franchiser has no control over branding.

Answer: (A)

In franchising, the franchiser earns money mainly from upfront fees, ongoing royalties, and contributions to marketing, rather than taking all the profits from each unit. This means the franchiser’s returns are a share of what the franchisee earns, not the entire profit of the business. That shared-profit arrangement is a disadvantage because it caps how much profit the franchiser can keep from a successful location, even as the brand grows across many units. The upside of franchising—rapid expansion with less capital and shared risk—comes with this trade-off. Other options don’t fit as disadvantages for the franchiser: location conflicts aren’t guaranteed to be easily resolved, branding is typically controlled by the franchiser, and expansion is usually funded by the franchisee rather than by the franchiser.

In franchising, the franchiser earns money mainly from upfront fees, ongoing royalties, and contributions to marketing, rather than taking all the profits from each unit. This means the franchiser’s returns are a share of what the franchisee earns, not the entire profit of the business. That shared-profit arrangement is a disadvantage because it caps how much profit the franchiser can keep from a successful location, even as the brand grows across many units. The upside of franchising—rapid expansion with less capital and shared risk—comes with this trade-off.

Other options don’t fit as disadvantages for the franchiser: location conflicts aren’t guaranteed to be easily resolved, branding is typically controlled by the franchiser, and expansion is usually funded by the franchisee rather than by the franchiser.