Home Business 8 Different Types of Franchising and How They Work

8 Different Types of Franchising and How They Work

8 min read
Comments Off on 8 Different Types of Franchising and How They Work

If you are looking for a way to have a successful business without going through the initial risk of building your brand, buying a franchise is a great option. You have a higher success rate and get business assistance with a turn-key operation from the get-go. So, where do you start?

There are many ways to start a franchise, and you can build your model to include multiple stores if that is your ambition. It’s important to understand what a franchise is and what will work best for you. By learning about different types of franchising, you can make an informed choice and start travelling down the entrepreneurial path.

Here are eight different types of franchising:

Type #1: Job Franchising

A job franchise is a great option for those who want a smaller operation or desire one home-based. It is a low-investment opportunity that requires minimal equipment and stock, making the start-up is easier.

Many businesses are set up in this manner, including lawn care, cleaning services, cell phone repairs, real estate services and travel agencies. It is a great way to start running a franchise business independently or with a small staff.

Type #2: Business Franchising

This type of franchising allows you to obtain rights to a business name, trademarks and processes from a franchiser. In return, you will pay an initial cost and ongoing fees. You will get training and guidance from the parent company and operate using their procedures, products and marketing.

There will be a binding contract outlining all the requirements and terms of the agreement. Ensure you work with your franchise lawyer to secure this documentation properly. After signing the agreement, your franchiser will work hard to help you succeed. Most big chain stores operate under this model with retail, restaurants, business services, fitness and fast food, and others.

Type #3: Management Franchising

A management franchise is where their franchisee manages an existing franchise. They may purchase a resale franchise with the operation already running and systems in place. They then focus on managing the operation and leading it to success rather than running it today.

The new franchisee will have a strong management skillset and can step in to correct any operational issues like training and restaffing if necessary. They govern the business with a broad oversight using their experience and expertise to manage their existing team.

Type #4: Investment Franchising

An investment franchise is similar to a management franchise but invests a large amount of capital into the franchiser and may also be a franchisee. They will provide a management team and money and look for a return on their investment and capital gains without much involvement. Hotels and large restaurants operate under this franchise model.

Type #5: Production Distribution Franchising

With a production-distribution agreement, the franchiser supplies products, and the franchisee is the distributor, sells those products. They don’t require training or support and are much more independent. The franchise still has a contract with guidelines on selling the products and will pay regular fees for the rights to the trademark names and those they market.

This type of franchising is ideal when the franchisee sells and distributes the parent company’s products. It is generally for larger items, including cars, computers, appliances and vending machines.

Type #6: Conversion Franchising

A conversion franchise is where a business converts a similar existing business into a franchise. This new franchisee will take on the new trademark and use their marketing and advertising methods, and be trained in the parent company’s business operations.

The new franchise isn’t starting from scratch and may have a loyal clientele already. So, they just need to retool their business to align with the franchise agreement and build off the success of the original brand. All standard franchise contract specifics will be similar, and they will become an independent extension of the parent company.

Type #7: Area Developer Franchising

If you want to own all the franchises in a particular city or location, an area franchiser is how to proceed. You will enter an agreement with the franchiser that stipulates the number of locations you can open up, the boundaries with which they must be located and a time frame that they must be up and running. This allows the franchisee to “own” a neighbourhood or area without the threat of franchise competition but does require them to open all locations, typically within five years.

Type #8: Master Franchisee

Master franchisee agreements allow a person or entity the right to spread to larger territories or even other countries and recruit new franchisees there. They become responsible for training and support and may build training centres internationally for their franchisees. This sub-franchiser is granted rights to third-party operations but still must stick with the consistent branding of the parent company.

Comments are closed.