Franchise Vs Dealership: What’s the Difference & What to choose?
Introduction
The franchise has become one of the fastest-growing business models in India. Just after the ongoing pandemic, people have started a business that has little risk but, a good profit margin. On the other hand, opening up a dealership is surely a good business but, you might require to spend more financially.
Do not worry, both franchises and dealerships have their advantages and disadvantages. But, it all depends on the people, their tastes, preference, product selection, and area. Further, in this article, we will only talk about all the differences between franchises and dealerships. Additionally, we will also tell you what to avoid and what not to avoid for both franchise and dealership.
Basic Difference between Franchise & Dealership
Before knowing the difference between a franchise and a dealership we must the definition of each. Many of us might know what franchises and dealerships are but, we do not know what they mean. The meaning of franchise and dealership is given below:-
Franchise - A franchise is something where you can distribute both products and services. The franchisor takes all the legal rights and authority to deal with the company's products and services that he is going to deal with. The franchisor builds a trademark, brand name, and business system, by paying a loyalty fee to the parent company.
Dealership - Dealership is quite the same as a franchise but, it is slightly different. It is a store that has been approved or authorized to sell a specific brand of goods. A dealership can be considered a business when you sell a certain item to the market. For example, if you are looking for a Rolls Royce car then you are going to visit a Rolls Royce dealership.
Now, the basic difference between franchise and dealership is given in the table below:-
| Parameters | Franchise | Dealership |
| Daily operation | Franchisee is bound to work as per the agreement between them and the parent company. The franchisee needs to fulfil their roles and responsibility under the agreement. | The parent company can advise its dealers on how to conduct daily activities. |
| Fee structure | You need to pay some fee to become a part of a company. Some of the fees that you need to pay are franchise fee, loyalty fee, branding fee, and fee for franchise systems | Opening a dealership does not require to pay any fee to its parent company. It is because the dealership directly buys the products from its parent company and further sells them to customers. |
| Functional Area | Franchise have a large functional area | Dealership have a limited functional area |
| Goals | A franchise needs to meet the set goals or targets. Franchise owners mostly need to buy a fixed number of products from its parent company for further selling. | There is no goal set for dealerships. Interestingly, dealerships set their goals and targets. It all depends on the owner. |
Pros of a Franchise Business
Opening up a franchise has lots of advantages. Here are some of the pros of taking up a franchise business model:-
- Good assistance - You get good business support from the franchisor. Now, depending on the terms and agreement you will receive assistance from the parent company.
- Brand recognition - You not only become a part of the franchise but, their brand as well. You do not need to create a customer base as customers already know of your franchise because of the brand.
- Low failure rate - Opening up a reputable business franchise has a low failure rate. You are joining a successful brand when you become a part of a reputable brand.
- Systematic work - Getting a franchise means you are buying a system. The whole business system is always crystal clear.
- Good profit margin- Franchise sees higher profit rates than any other business model. Most franchisees are reputed which attracts customers and that is how franchises earn profit.
Cons of a Franchise Business
- Strict regulations - Opening up a franchise does not mean you are free to rule. You are not your boss you need to follow all the orders as per the agreement.
- Ongoing fee - Opening up a franchise has lots of fee structures. For example, loyalty fees, brand fees, security deposits, and many more.
- Initial cost - The initial cost could be quite high depending on the product you are willing to deal with.
- Less flexibility - As there is an agreement, you need to follow the rules and regulations set by them. You cannot make your own rules and working time.
- Fate is not under your control - The future of a franchise is in the hands of the parent company. If they stop conducting business with you then your franchise is of no use.
Pros of Dealership
- Less startup capital - If you are planning for a local dealership then you might not require huge capital.
- Set your profit margin - Yes dealerships can set their profit margin as the price tag is not set by the upper dealers.
- No restrictions - Opening a dealership has few restrictions
- No fee - Opening a dealership does not require any additional fee
Cons of Dealership
- Less profit margin - As compared to the franchise, dealerships earn a few profit margins.
- Risk of failure - As there is no guarantee of profit margin, a dealership may fall if not successful
What type of franchise is good?
You have a long list of franchise types in India. Some of them are job franchises, product franchises, business franchises, food franchises, medical franchises, and the list goes on. Now, the healthcare franchise is the best type of franchise that you could go for.
Unfortunately, to open a medical franchise the investment is quite high. If you are willing to open a franchise then the food franchise is the best in India.
What type of dealerships is good?
There are multiple types of a dealership in India. You can either open a car dealership, pan masala dealership, BHPH dealership, private retailer, and many more.
The best type of dealership is the car dealership. You get ample commission after selling one piece of the car.
Franchise & Dealership Types to Avoid
There is no such type of franchise that you can avoid. All sorts of franchises are quite well in the Indian market. Instead, make sure you do not fall into the hands of fraudulence. Additionally, do not start franchises where you need to deal with products and services alone.
On the other hand, the best dealership is to avoid anything related to drugs. Do not promote drugs as it has no future. Your business might boom today, but, there is no guarantee for tomorrow.