The Five Different Types of Franchise
One of the things that I love most about the world of franchising is the variety of industries and businesses that it spans, and the flexibility that franchising as a business model offers. With a few important caveats, most sustainable and profitable businesses can be franchised and franchises on offer can be categorised by many different factors, from investment level to industry, from operational model to network scale and size.
Franchises can be broadly separated out into five different types. Let’s explore them below.
A job franchise is a franchise model which is designed to be owned and run by one person – an owner-operator – or with minimal additional staff. It is generally a low-investment opportunity and very often is a franchise which can be operated from the franchisee’s home or on a mobile basis. In buying the franchise, the franchisee creates a job and an income for themselves, hence the name. The franchisee will deliver services or sell products to their customer base. Examples of a job franchise would be cleaning services, lawn care, a mobile coffee business or my own field of children’s activities, clubs and classes.
An investment franchise is at the other end of the scale to the job franchise. It is a large scale operation, requiring significant capital expenditure. In most cases the franchisee will not be involved in the business on a day-to-day basis at all, and in all cases the franchise will require a significant professional management team to operate it. The franchisee is likely to be a corporate investor and to have significant commercial experience in the same or similar sector. They may already own other franchises within the same industry. Hotel and large restaurant franchises are good examples of an investment franchise, as well as some retail franchises and gym brands.
With a distribution franchise, the franchisor grants the franchisee the right to distribute or sell their product or range of products to customers. A distribution franchise differs from other types of franchise because generally the franchisee will operate and sell the franchisor’s product under their own identity rather than adopting the franchisor’s name and operational systems. Examples of a distribution franchise would include car dealerships and electrical appliance retailers.
Business Format Franchise
The business format franchise is the model that will spring to most people’s minds when they think of franchising. Under a business format franchise, the franchisor provides the franchisee with everything needed in order to set up and operate the business, from equipment and premises if required, to training, operational systems, supplier contracts, marketing tools and support and more. The business format franchise covers a broad spectrum, from fast-food restaurants and coffee shops, to business services and personal care.
Last but not least, the conversion franchise model exists where the franchisee joins the franchisor’s network already owning an independent business within the franchisor’s industry. The existing entity is converted into a franchise branch. This allows a franchisor to very quickly expand a network, whilst offering the franchisee the benefits of becoming part of a well-known brand with all of the operational and financial plus points of being part of a network with training and support. Conversion franchises are common within the real estate industry, dental and medical clinics and hairdressing.
Franchising offers a fantastic and diverse range of opportunities to an aspiring business owner, but the wide spectrum can seem overwhelming. Having an understanding of the difference between the types of franchises on offer will assist a would-be franchisee in narrowing down their options in order to choose the model that best suits their individual needs and their goals.
The Five Different Types Of Franchise – Forbes
The Five Different Types of Franchise