- Fantastic Team
- 4min read
- Published: September 13, 2017
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3 Basic Types of Franchise Systems
Owning your own business and being your own boss is the dream of millions of people worldwide, but it can be difficult to know where and how to start. Among the countless options available to you, there is one that offers greater stability and support than most. This option involves buying a franchise.
A “franchise” is a term which most of us are seemingly familiar with. But what is meant by a franchise exactly and what are the benefits of owning one?
Under the franchising business model, you buy the right to use a given trade name and benefit from the expertise and experience of an already established company. This means that you will not have to worry about building a recognisable and trusted brand name, developing a well-trained support team, or finding reliable advisors to help you efficiently run your own business. All of this is already made available to you.
There are several franchise types available, so before you jump head-first into the sea of franchising opportunities, make sure to read through the rest of this article to find the one that will fuel your dreams and plans.
Types of franchise business models
There are many factors that differentiate each type of franchise model available, such as the overall size or the terms of using the brand name. For the purposes of this article, the different franchising opportunities will be differentiated based on how franchisors let you use their name and trademarks.
There are three main types of franchise opportunities available, these are:
Business format franchises
The most common type of franchise is the business format franchise. This type of franchising facilitates the expansion of the franchiser business by allowing individuals to buy a business with an established brand name. New business owners will often be supported throughout the initial business stages and will continue to receive support in running their business. In return for the offered support, access to experienced professionals, and the right to use the business name and trademarks, the new business owner is obligated to pay a royalty fee to the franchiser on a regular basis.
The best example of this franchise model can be found in the fast-food industry. If you buy a McDonald’s franchise, you will own that particular franchise, and the parent company (McDonald’s) will collect regular royalty fees from you. The parent company will provide you with ongoing support, the right to use their brand name, and with any staff training materials, you may need. You are, however, obligated to buy all necessary supplies, such as stock and uniforms, directly from them.
Product franchises or single operator franchises
This type of franchise model focuses on individuals who are selling products or delivering a service in a specific trade or industry field. The franchiser will allow you to use their brand name and trademarks, provide you with the uniform and equipment needed to properly represent the brand, and offer you ongoing support. Product franchises are a great option for first-time business owners, independent contractors, and home businesses since the investment needed is usually smaller than that of business format franchises.
A good example of this is an independent contractor investing in a franchise that has an established name and reputation in their field of work. For example, if a self-employed plumber invests in a franchise offering plumbing services, they will then have access to a wider customer base, greater advertising potential, and the support of a team of professionals who will help the plumber to handle bookings, payments, and complaints.
In manufacturing franchises, the franchisоr allows a franchisee to produce items using their brand name and trademark. While this type of franchise is the most popular among food and drink companies, they can also be found throughout the manufacturing industry, from children’s toys to cars.
The best example of this would be a soft drinks company. The parent company will produce the concentrated syrup and then sell it, as well as the right to use its brand name and trademarks, to a bottling company. That company will then mix the syrup with water and bottle the finished product before selling it on to various suppliers.
So, there we have it, your introductory guide to the three main types of franchises. If you would like to start your own business or become self-employed, then buying an established franchise is a great place to start. With an experienced franchisоr taking care of customer support and providing everything you need to get started, the only risk you have to take is the initial investment.
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