A Guide For Franchising: Types, Differences, And Advantages

Jul 17, 2022 | 0 comments

We all know how businesses are growing rapidly nowadays. Business organizations cling to different methods to increase the scope of their business. One of the diverse methods that business owners use is franchising. Franchise options are increasing day by day as more people are choosing franchises as their business. This form of business is a way, by which organizations can increase their customer outreach.

Through franchising, the business organizations delivering products and services can reach out to a larger population where they may or may not be able to get through themselves. They can distribute the products and services which they provide through franchising. The owners also called the franchisors channel and market their business through attached individuals or a body of individuals known as the franchisees. Several franchising companies fix appointments between a franchisor and a franchisee.

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A business will find potential in a franchisee or a franchised company if they can take the responsibility of developing the business in a certain area. A franchisor gives all necessary assistance to a franchisee to run the business against a sum of financial remittance from them.

The assistance for running the business is offered by the franchisor such as arranging, training, managing, technical know-how, and merchandising, along with the intellectual property and assistance for marketing. If you want to run a business but think it is risky, you should try your chance as a franchisee.

Best franchise opportunities that you can buy

Best franchise opportunities that you can buy

Product/distribution franchise

This is one of the limited kinds of franchise businesses where the franchisee or the dealer uses his own space to sell or distribute products of the franchisor or the parent company utilizing their brand name. The franchisor allows the franchisee to do business in their name for which the franchisee pays a sum to the franchisor. The franchisor provides his products to the dealer/franchisee and the franchisee sells them. In this variety of franchise businesses, the parent company/franchisor backs the franchisee with aid for marketing and training.

The advantage of a product distribution franchise is that the franchisor authorizes the franchisee to use his trademark for business. Although they don’t have to provide full support to the franchisee i.e., the dealer doesn’t gain full control over the operation of the business. The franchisee running his own business but under a franchisor’s name.

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Management franchise

This franchise business model necessarily is focused on service-based and management activities. The franchisee is authorized to do the business in the name of the franchisor. B2B Management is basically focused on service franchises.

The businesses include services such as home care services, facilities management services, tax & fiscal consultancies, human resources, transit & logistic services, properties, repair & maintenance, professional services, hospitality, healthcare, supply chain management, and others. The franchised company is supplied with training, marketing, and basic infrastructure by the franchisor.

Manufacturing franchise

A manufacturing franchise is a kind of franchise business where the franchisor’s business focuses on manufacturing consumer as well as industrial goods. The franchisee is granted the rights and authorized by the franchisor to run production units utilizing their trade name.

Aside from producing, the franchisee can distribute the manufactured goods. This kind of franchise is related to producing for the sale of goods for consumption. Of the many kinds of manufacturing businesses, this franchise structure deals with the production and packaging, and consumer goods.

Some popular manufacturer’s franchise businesses are:

  • Food and beverage companies such as Coca-Cola, Nestle
  • Automobile brands such as Hyundai
  • Clothing brands

Conversion franchise

Of the five kinds of franchising, conversion franchising is the only one that is a hybrid. It is a method of increasing franchise systems wherein a franchise begins a relationship with an existing company and converts it into a franchise unit. The franchisee uses the parent company’s trademarks, marketing, and advertising programs, training system, and customer service protocols.

This is a method for existing companies to experience quick growth because the franchisee isn’t starting a new business location from the very beginning. The basic business and even a level of clientele are already available. The independent company that starts a franchise relationship also takes advantage by obtaining the strength of a popular, successful brand, and all the support systems that come with it.

Examples of this type of franchising are common among these industries:

  • Electricians
  • Florists
  • HVAC
  • Plumbing services
  • Professional service companies
  • Real-estate brokers

Job franchise

A Job franchise is generally a less expensive franchise (often home-based) that can be handled alone or with minimal personnel. The franchisee only needs to pay a franchise fee and minimal startup expenses, like equipment, basic materials, and sometimes a vehicle. A large number of industries can be franchised in this way, generally offering services.

Some examples are:

  • Cell phone repairs and accessories
  • Cleaning services
  • Children’s services
  • Event planning
  • Plumbing
  • Pool maintenance
  • Residential lawn care
  • Specialty coffees (possibly a mobile unit)
  • Travel agency

Business format franchise

Business format franchising is the most popular of all the types of franchising and is what most people consider when talking about the franchising industry. A franchisee under the business format runs his or her business under the parent company’s brand, plus gets the whole proven system under which to handle and market the products or services.

The parent company offers a detailed plan, complete instructions, and meticulous training on almost every aspect of the business, as well as both initial and ongoing support. Some examples are:

  • Fast food (Chick-Fil-A, McDonald’s, Subway, KFC)
  • Restaurant (Olive Garden, Longhorn, Golden Corral)
  • Fitness (Gold’s Gym, Planet Fitness, Anytime Fitness)
  • Retail (The Children’s Place, Abercrombie & Fitch, Bath & Body Works)

Master franchise

Master franchises consensuses give a franchise a right to sub-franchise the brand’s outlet in a specific area. The master franchisee obtains exclusive rights to a region, letting them grow a franchise empire.

The master franchise offers training and support to the franchisees under it, and for that, it keeps 50% of the franchise fee charged from them.

This consensus is more popular with international franchises. A foreign company makes use of local people who know the country’s laws, language, and customs.

Investment franchise

Large restaurants and hotels need large-scale investment. In this kind of franchise, the franchisee incurs a remarkable investment in the business and management team. The franchisor may also run the business for the franchisee.

Some famous Investment franchises are:

  • Hotels such as Marriott International, Holiday Inn
  • Large restaurants such as Darden, Yum China

Advantages of owning a business franchise

Advantages of owning a business franchise

Minimum business plan

The basic model of franchise business is developed on a well-established trademark name. The planning and decision-making are made by the parent company, being a situated brand the franchisee has to do the least planning for the business.

Read More:5 Ways To Write A Viable Business Plan And Stick With It

Saves up on capital

Since the trademark of an established business is employed for running the business, a franchisee only needs investment for setup and signing contracts in the very beginning.

Procurement of goods

Aside from setup costs, franchisees pay no costs for procuring goods and services. Franchisors give basic support for procuring materials to the franchisees for selling and distribution.

Saves the cost of training for personnel

By owning a franchise business, franchisees don’t have to waste their resources on training their personnel. The franchisor procures basic training, training of material handling, and technical knowledge for the employees of its franchised company.

Advantages of a brand name

Using the title and rights of a famous brand decrease the possibility of incurring losses. Buying a famous franchise business has restricted risk and ensures success for the business. Customers put their faith in a well-known brand because of its position in the market and purchasing the rights of a trusted brand to do business is an advantage.

Easier to procure funds

Providing finances for a franchise business set-up is easy and franchisees can request banks and financial institutions for loans to buy and begin a business.

How to assess a franchise opportunity?

assess a franchise opportunity

No franchise is suitable for everyone. Entrepreneurs who want to set up a franchise must take into account their financial constraints and the franchiser’s support system during the assessment phase.

The market

A franchise may have experienced success in other areas, but how well does it perform in your local region? While it’s improbable to know how successful a business is likely to be in a specific region, you can make a calculated guess by doing market research.

The franchise’s history

Although a business’ age shouldn’t essentially impact your decision to invest in it, franchises with a long history have possibly completed their models and strategies. Of course, young companies can provide great investment opportunities too.

The financing

When it comes to financing, there are three major factors you should take into consideration in any franchise opportunity: the initial investment, working capital, and ongoing expenses.

The training and support

The best franchises put money heavily into the development of their franchisees. Search for opportunities providing comprehensive training programs including every aspect of business ownership, from the company’s product range to handling franchise finances.

The limitations

Franchising works well because franchisors set up an efficient business model and franchisees follow it to the letter to begin additional branches. As a result, restrictions, limitations, rules, and guidelines are crucial to the franchise system and you must be eager to adhere to them.

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