What is a disadvantage faced by franchisees?

The choice regarding mandatory annual royalty payments highlights a significant disadvantage for franchisees. When a person decides to become a franchisee, they enter into a contractual agreement with the franchisor, which often includes the obligation to pay regular royalties. These payments are typically calculated as a percentage of the franchisee's sales and can significantly impact profitability. This ongoing financial commitment can limit the franchisee's ability to reinvest profits into their business or save for other needs, making it a crucial consideration for anyone looking to open a franchise.

In contrast, control over marketing strategies is usually influenced by the franchisor’s established brand and marketing guidelines. The ability to determine product prices independently is often restricted to maintain brand consistency and competitiveness. Complete ownership of the store layout is also typically limited, as franchisors often have specific design standards to uphold the brand image. Thus, mandatory royalty payments represent a unique and ongoing financial challenge specifically associated with franchising, unlike the other choices which reflect different aspects of operating within a franchise model.