Difference Between a Dealership & a Franchise

by Loise Kinyanjui; Updated September 26, 2017

A dealership and a franchise are two forms of conducting business through association with a company that is already established in the market. Both arrangements have a similar aim of saving on start-up costs by dealing with a product that already has brand recognition and, therefore, less consumer resistance. However, there are several differences between a franchise and a dealership.

Control

One of the main differences between the two is how they are run. A dealership is run by an independent entrepreneur, while a franchise is managed by a franchisee. Most business people prefer running dealerships rather than franchises, because they can run the dealership business as they see fit. They are only advised on how to run it by the parent, but they do not have to follow this advice. They choose the pricing for their products and working hours. A franchise represents the company as a whole. This means the managers have to follow all the company’s rules and regulations.

Royalties

Franchises have to pay their parent companies monthly royalty fees for trading in the brand. In addition to these fess, most franchises also have to pay their umbrella companies a certain percentage of their total monthly sales. The owner of a dealership does not have to deal with so many charges. This allows him to retain more profit.

Initial Start-Up Costs

The charges involved in setting up a franchise are substantial. The entrepreneur has to pay for franchising fees, equipment and other licenses. He also must find a number of people to employ. These employees need to be trained, and this is an additional cost. A dealership owner, on the other hand, does not have to worry about such costs. He mostly incurs the costs of getting the license and purchasing the products.

Goals

Another difference between the two is their goals. A franchise has to meet the set targets set by the franchiser (the main company). Franchise owners also are required to buy a fixed number of products from the parent company. If the franchisee does not meet these requirements, he can be shut down by the franchiser. The owner of a dealership sets his own goals. Whether he achieves his goals is up to him.

About the Author

Based in Nairobi, Kenya, Loise Kinyanjui has been writing since 2009. She works as a features writer with Kitabu Publishers and has contributed news articles to various magazines and newspapers including "Weekly Citizen" and the "Kenyan Times." Kinyanjui holds a Bachelor of Arts degree in literature from Baraton University.