Franchising is a great way to become an owner of a small business. There are three different types of franchises which you can choose from, they vary in terms of your position, your input into the business and the amount of involvement of the franchisor. The three types of franchises are; the business format franchise, product distribution franchise and management franchise. Each franchise operates differently and in this guide you will find the differences between the three.
Business Format Franchise
This type of franchise is perhaps what most people refer to as a typical franchise. This type of franchise is when the franchisor gives the rights to trademarks, trade names, business process and the system in order for the franchisee to sell the product, for a fee. The franchisor is heavily involved in terms of how the service is provided and the business is run. This kind of franchise relationship comes with guidelines and expectations from the franchisor which the franchisee has to adhere to. There is also a binding contract/agreement between the two parties to bind the two for a certain period of time. The great thing for franchisees is that ongoing support, advice and training is given from experienced franchisors, which will consequently result in success.
The business format franchise is the most popular type of franchise system that is chosen by franchisees. Some of the biggest brands that adhere to this type of franchising are McDonalds, Dunkin’ Donuts, Starbucks and KFC. You can tell how closely the franchisor and franchisee work with each other from these big brands by the similarity of the product and service in each branch you visit. For example if you order a Big Mac from London, you can get the exact same burger in Manchester. Some of the most popular industries for business format franchises are fast food, fitness and restaurants.
Product Distribution Franchise
This franchise concept is similar to a supplier – distributor relationship. The franchisor is responsible for providing the product and the distributor is then able to sell the product on. The main thing that is given from the franchisor is the product whereas with the business format it includes training, support etc. With this type of franchise, the franchisee can be much more independent in terms of not having the restriction and guidelines that a business format franchisee has. However a product distribution franchisee still has to follow certain guidelines such as selling the products on an exclusive or a semi-exclusive basis. The franchisee has to pay fees for using the trademark name and trademarks, as well as for the products that they are wanting to sell.
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.
Management franchising is great for re-sale franchises, which are franchises that are bought from an existing franchisee, as all the operational day to day tasks and activities are in place including the existing staff. It may seem like you don’t need to make changes and it’s easy to run an existing franchise, however there are certain things you need to consider. If your chosen franchise has not been performing well, then you may have to implement serious changes to the staff or the day to day operations.
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