If you are seriously considering buying a franchise, you should be aware of the franchise types that are available. Since you want to work on an already proven model, you should be able to identify which sector of the industry you are comfortable working in, depending on your financial status.
While franchises can be differentiated and categorized in many ways based on their size and geographical location, etc, we will however break them down depending on how franchisors let franchisees use their trademarks and names to distribute their products. That said, there are three types of franchises:
- Product franchises
- Manufacturing franchises
- Business format franchises
Business Format Franchises
There are a total of 770,000 franchise businesses in the United States and 80% of them are business format franchises. In business format franchises, the franchisor sells the rights to the trademark and trade name as well as the business processes and systems to the franchisee to develop products and services for the customers. The franchisee buys the complete business system from the franchisor which results in a sustained and successful end-product.
For example, McDonald’s food will almost taste the same no matter which outlet you buy it from. Fast food franchises like Pizza Hut, McDonald’s and Burger King are also notable examples of business format franchises. This is the most common type of franchise in which the brand grows and expands by selling elements of an already operating business, to business owners to distribute their products. The franchisor provides considerable support and assistance to the franchisee and in return, the franchisee pays a royalty fee.
In product franchises, manufacturers have control over the retail stores that distribute their products. In this contract, manufacturers allow store owners to use their trade name and trademark. Store owners must pay a certain fee to obtain this privilege or buy a specified number of products to qualify for a franchise. Example includes computer shops where the owner is selling HP desktops. In this business relationship, the manufacturer benefits more than the dealer.
To illustrate, let’s say you want to open a Coca Cola company. You will have to obtain rights from the Coke company to use its name and trademark to produce the beverage. You will then set up a manufacturing plant. The Coca Cola Company will sell you the coke extract; you will combine the ingredients together and bottle up the final product to sell it forward. In this agreement, the company is also selling supplies to regional franchises.
It does not matter which type of franchise you choose. In the end, only consistent work and passion will make your franchise successful. Franchise management software is also available to help you get there. Since in all models, you will be following the franchisor’s business model, the software will simplify the work for you. With features like franchise CRM, store management, book keeping, data recording, communication, resource and marketing management, your tasks will be more organized and efficient. Moreover, your expenses for operating a franchise will also be reduced.