The 5 Types of Franchising
Aspiring entrepreneurs looking to get into a small business are increasingly choosing one of the different types of franchising. There are many types of franchising models available, across a host of industries. If you wish to open a new franchise, you should know beforehand which industry you would like to be involved in, the level of financial commitment to which you can commit, and the time your personally have available to invest.
Franchising is a flexible business model, and practically any type of business can be successfully franchised. Franchises can be categorized by different factors, such as investment level, the franchisor’s strategy, marketing, operations, relational type, and more. There are five major types of franchising. Let’s take a brief look at each.
A Job Franchise is generally a low-investment franchise (often home-based) that can be operated alone or with minimal staffing (less than 5). The franchisee is only required to pay a franchise fee and minimal startup costs, like equipment, basic materials, and sometimes a vehicle. A large number of industries can be franchised in this manner, generally providing services.
Some examples are:
- Cell phone repairs and accessories
- Cleaning services
- Children’s services
- Event planning
- Pool maintenance
- Residential lawn care
- Specialty coffees (possibly a mobile unit)
- Travel agency
Sometimes called a Distribution Franchise, these product-driven franchises are where the franchisee distributes the parent company products and some related services. The parent company provides the use of its branded trademark, but not typically an entire system for running a business. Product franchises are predominantly large product dealers. Consequently, product, or distribution, franchising makes up the highest percentage of total US retail sales.
Some examples are:
- Cars and car repair parts (GMC, Ford, Exxon, Goodyear Tires)
- Large equipment (John Deere Tractor, Caterpillar)
- Computers (Dell, Asus, Hewlett Packard)
- Appliances (Frigidaire, Kenmore, LG)
- Vending machines
Sometimes the parent company licenses its franchisees not only the rights for distribution, but also part of the manufacturing process. A common example of this type of franchising is soft drink manufacturers, like Pepsi and Coca-Cola.
Business Format Franchise
Business format franchising is the most popular of all the types of franchising, and is what most people think about when talking about the franchising industry. This is likely why a common objection to franchising is, “I don’t want to work in fast food.” A franchisee under the business format operates his or her business under the parent company’s brand, plus gets the entire proven system under which to operate and market the products or services.
The parent company provides a detailed plan, complete procedures, and thorough 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)
An investment franchise is usually a large-scale business that requires a huge capital investment (huge compared to other franchising options). The franchisee is actually a major investor who provides the money and management team, or sometimes engages their own franchisee, to operate the business. This type of franchising is used primarily to produce a return on investment with little personal involvement, as well as a possible capital gain on exit.
- Hotels (Comfort Inn, Days Inn, Holiday Inn Express)
- Large restaurants
Of the five types of franchising, conversion franchising is the only one that is a hybrid. It is a method of growing franchise systems wherein a franchise enters into a relationship with an existing company and converts it into a franchise unit. The franchisee adopts the parent company’s trademarks, marketing and advertising programs, training system, and client service protocols.
This is a way for existing companies to experience rapid growth, because the franchisee isn’t starting up a new business location from scratch. The basic business and even a level of clientele are already in place. The independent company that enters into a franchise relationship also benefits by gaining the strength of a popular, successful brand, and all the support systems that come with it.
Examples of this type of franchising are popular among these industries:
- Plumbing services
- Professional service companies
- Real-estate brokers
Get Started with Franchise Guardian
Are you ready to talk with an expert advisor about purchasing a franchise business? Franchise Guardian has an opportunity for everyone: low-cost, mid, or high. Discover premium brands, become your own boss in a field you enjoy, and share in a common interest with like-minded entrepreneurs.
Choose opportunities in the five types of franchising from these 30 industries:
Accounting, Advertising, Automotive, Business, Children, Cleaning, Coffee, Computer, Consultant, Courier, Staffing, Entertainment, Fitness, Food, Beauty, Senior Care, Home-Based, Industrial, Shipping, Moving, Pet, Photography, Real Estate, Security, Sports, Restaurant, Taxes, Training, Travel, or Vending.
If you’re interested in learning more about starting your own business by investing in a new franchise opportunity, contact Franchise Guardian by phone or online today.
The product distribution franchise method is used often for larger products, such as vending machines and cars. Some of the big brands which use this concept are Coca-Cola and the Ford Company. Interestingly, although the business format franchise is the most popular, the product distribution franchise actually represents the highest percentage of total retail sales. This franchise focuses on the franchisee managing the franchise. The manager does not really need to part take in the day to day running of the business. This type of franchise would be ideal for somebody with previous managing experience as it allows individuals with transferable skills to really take ownership of a business and lead it to success. Business-related skills such as having an entrepreneurial flair, preferably from experience, will only help you in the journey to success. For this type of franchise, you will also be required to pay fees for the ability to use the trademarks of a franchise, and your focus is on business development, overseeing the business and managing the team.