Are you considering getting involved with a franchise? If so, you’ll be joining a thriving business model that’s experiencing rapid growth. Keep in mind that there are 792,000 franchise units in the United States as of November 2022, employing nearly 8.5 million workers.
Read on to learn about the franchise relationship contract and other important aspects related to this business format.
What is a Franchise Business?
A franchise consists of two entities: one party that creates the trade name, brand, and business formula, and another party that operates within the franchise system by paying fees, royalties, and obtaining franchisor licenses.
These independent small business owners have the opportunity to utilize the products, logo, and business name of the larger company.
- READ MORE: See our Franchise Guide
What Are the 5 Types of Franchise?
There are different types of franchise models. Everything from professional services companies to retail outlets and fast food franchise businesses is included.
Here are five types that you can sort through.
Job Franchise
These are low-investment franchises. The staff is small and you’ll need to invest money in equipment and sometimes a vehicle. Examples include event planning and cleaning services.
Product Franchise
Vending machines and bicycles are two examples of a product franchise. In this type of business, the franchisee distributes related services and the franchisor’s products.
Business Format Franchise
Are you interested in one of these types of franchises? With one of these, you operate using the parent company’s trademark or brand. You’ll also get to use their proprietary systems.
Examples of business format franchises include fast food restaurants, fitness centers, and retail stores. It can also be called a management franchise if the products are B2B.
Investment Franchise
This type of franchise is large-scale. It requires a management team and a huge capital investment. Think hotels.
Conversion Franchise
This type of franchise stands apart from the other types of franchises. It provides a streamlined approach to business development by establishing a unique partnership with an existing company. Plumbing services serve as a prime example of conversion franchising. Additional examples include a real estate service and an HVAC company.
Why You Should Start a Jobs Franchise Business
Various types of franchises ultimately lead to the same outcome: you manage your own business. If you achieve sufficient success, you can operate multiple units.
There’s usually a franchise fee and some other costs for things like advertising programs. But in the end, the franchise industry is a lucrative place to apply your business-related skills. In many cases, you get to tap into the franchisor’s strategy to maximize your market share.
Here are some other reasons it’s a good idea to pay fees and get started in the franchise world.
Keep in mind the relationship models between the franchisor and franchisee can be simple. Make sure it is transparent and has a periodic evaluation. Both of the parties involved need to see value on an ongoing basis. There needs to be clear room for growth inside the model the franchisor and the franchisee are working with. Looking for ways to increase procurement savings for both can make the relationship better.
Benefits of Starting a Product Franchising Business
These product distribution franchising businesses make up the biggest number of total retail sales in America. Remember there’s a lower risk with a product distribution franchise than if you start up your own business from scratch.
You could even get involved with the Ford company, but a franchise can cost over $150K.
You get a lot of perks from the parent company pointed to a woman-owned brand or her business. Like the right to use the franchisor’s brand. This product distribution franchise method is popular. Coca-Cola is a big example. With a franchise this big it’s good to have good supplier-dealer relationships and previous managing experience. That makes franchisee management simpler. Especially when you can tap into a proven training system.
Reasons to Start a Business Format Franchising Company
Business format franchises make things simple. That’s a big advantage since you get franchisor licenses to use their trademark. Plus, the business format franchisee gets access to their entire system. That means the right and obligation to use the franchisor’s standards and system, and it is more than just the franchisor’s trademark. Other things are often included like initial and ongoing training.
Another bonus, the franchise focuses on selling the parent company’s services and products.
Why You Should Begin an Investment Franchise Business
Are you looking at investment and capital gain? This type of franchise unit is used to produce returns on investments. Think of large restaurants and hotels. You should invest in one of these if you can provide a management team and the money. This is for people who want to see an ROI without a lot of personal involvement. Examples include larger restaurants and bigger hotels like the Holiday Inn Express.
Why You Should Start a Conversion Franchise Business
If you’re an established company aiming for rapid growth, these types of franchises are ideal for you. By opting for them, you’ll benefit from the advertising, marketing, and trademarks of the parent company. Additionally, conversion franchising is a suitable choice if you want to leverage an existing manufacturing process.
What Is the Best Type of Franchise?
When exploring the various types of franchises, you’ll find a range of options available. At the forefront are business format franchisors who own one of these franchises. Opportunities exist across more than 70 industries, including options for real estate brokers interested in franchising within their field. Perhaps you’re considering starting an Anytime Fitness franchise? Currently, there are 4,000 locations worldwide.
Some people prefer what’s called a job franchise. Those are the ones where you can do them individually. Keep in mind there is an ongoing royalty fee income payment. This can be a percentage of gross profits, sales, or a flat rate.
Food and beverage companies are thriving. By partnering with major brands like McDonald’s, you can take advantage of their comprehensive system. If a smaller franchised business seems more appealing to you, consider exploring the franchise brands available at the International Franchise Association. You can find the link here.
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