Articles

Different types of franchises - PART 2

 

Franchisees are usually classified simply as single-unit, multi-unit, or master ownership. However, there are more types of franchises to consider before buying one.

Here we have tried to put all the different franchise ownership models in one place by classifying them in separate divisions.

Franchises can be classified in different types.

Franchises can be classified in different types.

 

Bought or converted: Entrepreneurs can buy franchise rights and create a new business from scratch or convert an existing business. Operating independently may not be the best decision for some businessmen who find it hard to keep up with the competition. Adopting the franchisor’s identity can bring your business many benefits including a wider product portfolio and a better competitive advantage. Switching over to a franchise is cheaper since entrepreneurs already have the needed facilities and an established client base.  

New or established franchise: There are a few different options to buy a franchise. As we already mentioned, entrepreneurs can start a franchise from the beginning, but they can also buy an established one. Pre-owned franchises come at a lower cost than new ones and can be bought from an existing franchisee who has put up for sale her business since she is longer interested in. You can also buy a retrofranchised or a refranchised business from the franchisor. Retrofranchising is when a company-operated business is sold to a new or an existing franchisee. Another form of retrofranchising is refranchising where the franchisor sells a company-owned franchise that was previously run by a franchisee.

New franchises are associated with higher risk but also with higher potential returns.

When buying an established franchise don’t forget to check what motivated the previous owner to put it on the market for sale. It the reasons include poor performance that should ring a bell in your head.

Retail, distribution, production: Depending on the function, franchises could be classified into business, logistics, distribution and production. However, keep in mind that these could overlap. A business could be distributing the franchisor’s products and producing some under the franchisor’s brand at the same time. However, for convenience, we have explained them separately.

Logistics- Logistics franchisees provide different logistics-related services. With the continuously increasing demand for logistics services, logistics franchises are growing in popularity.

Distribution- This is one of the most common franchise methods. Franchisees act as suppliers who purchase products from the franchisor and sell them. This could be a retail or a wholesale business. Some franchise agreements require franchisees to operate exclusively under the franchisor’s trademark while others are more flexible and allow owners to include other companies’ products and services in their portfolio. 

Production- Under this franchise model franchisees get the right to manufacture products under the franchisor’s brand name. For instance, an entrepreneur can sign an franchise agreement with a bakery producer which allows her to bake goodies at site and sell them instead of relying on the franchisor to supply her with ready products.

Business format- The business franchise model is where the franchisor provides entrepreneurs with a ready-made business model to work under and is the most common type. This franchise concept is easily applied to fast-food chains, coffee shops, learning centers. Instead of starting a business from scratch, entrepreneurs without much knowledge or experience can borrow the `know-how of established successful companies. This is the type of franchise business people usually refer to when they talk about franchising.

Full time or part time: While many companies require their franchise partners to operate their business full-time, others also let them choose part-time ownership. Full-time ownership allows franchisees to devote all their time to their business and commit to its expansion. However, starting a new business involves risks not everyone is willing to take. Part-time ownership lets franchisees keep their current job and make additional income from their full time-work. This way they can grow their business gradually without putting everything at stake.

Home-based, mobile or traditional: The traditional bricks-and-mortar franchise method involves the construction or rental of premises for the everyday operation of a franchise. However, many franchises models allow franchisees to work from home or have a mobile office or store. For instance, cruise agents do not necessary need an office since they communicate with clients through emails and phone calls. On the other hand, residential and office cleaning and professional tool sales representatives need mobile stores, usually in the form of minivans, which they can take to costumers. These types of franchises require less investment then the traditional model and provide low barrier to entry into entrepreneurship.

 

Click here to read PART ONE of the article.