Chain vs. Franchise: What Are the Main Differences?

date icon 7 minutes to read date icon 19th December, 2023

The world of business ownership is varied and diverse. There are sole proprietors and partnerships, limited liability corporations, and more, meaning that aspiring entrepreneurs have a lot of options to choose from. One question that is often asked in this sphere is: “what is the difference between a franchise and a chain?”.

They both have the same branding, they both operate at different locations. Aren’t they the same thing? The answer is negative. Chains and franchises are two completely different corporate structures that require further exploration. 

Let’s take a closer look at what is a chain business, what is a franchise, what the main differences are between them, and what each one’s advantages and disadvantages entail. 

What is a chain?

A business chain, by definition, is a corporate structure where either an individual or a group of investors owns a company that operates in various locations. 

Despite its geographical dispersion, the ownership of the chain remains consistent. The corporate board members are responsible for making strategic decisions, which may involve marketing, sales, or other operational aspects. 

These decisions are then implemented by managers at each location, ensuring the chain operates cohesively and effectively.

What is a franchise?

A brief franchise definition involves looking at a business from a different perspective. In essence, one or more franchise owners grant franchisees or individual investors the right to operate under the brand name, including the use of its intellectual property and proprietary business systems. 

While franchisees do operate at different locations much like a chain, the people who run these franchise locations are separate entities from the parent company. 

Chain vs. franchise – what is the difference?

If you are wondering about the difference between a franchise and a chain, you’ve come to the right place. Here are a couple of franchise vs. chain features that should be borne in mind when considering which business opportunity to pursue.

1. Ownership

When it comes to chain ownership, you’re looking at one corporate owner or a group of investors who are focused on driving business growth across the multiple locations where the chain operates. In terms of franchising, the franchisor is the owner of the parent brand but the franchisees are responsible for running their own businesses at the various geographic locations.

2. Financing

Chains typically source financing from two main avenues: they can reinvest in the business through accumulated profits or they can seek a third-party lender for financing. When it comes to franchising, each franchisee pays an initial franchise fee to the franchisor for the rights to operate the business. As such, they are usually self-funded. 

3. Profits

All profits of a chain store go to the corporate headquarters. These profits can be shared among investors or they can be reinvested in the business as part of its strategic growth objectives.

On the other hand, franchisors earn profits in two ways from franchisees.

The first way is through the initial franchise fee that a franchisee pays the franchisor to access the rights to operate the business.

The second way is through ongoing royalties paid by the franchisee to the franchisor, which are either a fixed amount of a percentage of total revenue on a monthly, quarterly, or annual basis.

4. Risks

When it comes to risks, in a chain store, all risk passes over to the owner, be it operational, due to human error, merchandising issues, or anything else.

In franchising, risk is often shared between the franchisor and franchisee, although more often than not, a franchisee will bear the risk associated with business ownership at their local location.

5. Consistency

Finally, a chain store owner will have full control over the chain, ensuring consistency across the board. However, with franchising, some dilution in terms of brand consistency may take place and it is harder for the franchisor to exercise full control over their franchisees’ activities.

Pros and cons of owning a chain

Now, let’s explore some of the pros and cons of owning a chain business.


  • Volume pricing – chains can take advantage of volume pricing and discounts when purchasing merchandise due to pre-established relationships with vendors. This means that they can buy products at a lower cost and sell them at a higher profit. 
  • Streamlined advertising – when a chain advertises for one location, it advertises the same for all of its locations. This means a discount in one store will also apply to another store in another location.
  • Experimentation – when a chain store wants to experiment with various strategies such as marketing or sales, it has full freedom to implement these strategies. There are no obstacles to experimentation as decision-making is carried out by corporate headquarters and implemented by the managers on the ground.


  • Chains can’t be easily owned – unless an investor has a significant amount of capital, chain stores can’t be easily owned. They require a large investment to purchase. Alternatively, they require a large investment to begin from scratch.

Pros and cons of owning a franchise

Having covered the pros and cons of a chain business, let’s explore what the pros and cons of a franchise are:


  • Brand identity – buying into a franchise business means that a franchisee is buying into an established brand. Building a brand from scratch can take years to achieve successfully but with an established franchise brand, franchisees can take advantage of buying into an industry-recognized brand.
  • Established business model – another advantage of franchise ownership is the fact that franchisees can avail of and work with an established business model. Such business models are usually tested and tried over different economic periods and often, they succeed in recessions and other economic challenges. 
  • Support – because a franchisor has a vested interest in the success of their franchisee network, they often invest heavily into providing their franchisees with training and ongoing support to ensure they thrive and scale up.


  • Potentially high cost of entry – some franchises have a high cost of entry, going into the millions of dollars. This can be inhibiting to some aspiring entrepreneurs. However, there are also low-cost franchises, making the industry more attractive to enter now more than ever. 
  • Follow strict guidelines – to ensure that there is brand consistency, most franchisors require that their franchisees follow strict guidelines in managing and running the business. As such, it leaves little room for flexibility or creativity on the part of the franchisee to implement their own decisions in running the franchise. 
  • Strict termination clauses – finally, most franchises have strict termination clauses in the event that a franchisee chooses to exit the business before the period of the franchise agreement has come to an end.


When it comes to what is the difference between a chain and a franchise, the ultimate answer lies in the levels and types of ownership.

While they may appear to be quite similar in that different locations operate under the same name, franchises and chains differ significantly in terms of business structure, business model, ownership, and more. 

Choosing to go the franchising route is probably the most affordable option for aspiring entrepreneurs who would like to enter the business world with outstanding levels of training and support. This means that there are fewer risks as a result of a tried-and-tested business model that has proven to be successful. 

Also, the risks involved in franchising are far and fewer in between than starting an independent startup.

So, franchising is definitely worth considering as a leading option for business owners who are looking for good returns on their investment while getting all the support needed from an established brand.

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