What kinds of Franchises are there? What’s the difference? Before we answer this question, let’s quickly review what a franchise actually is. In plain English, a franchise is a business that is expanded through a licensing relationship. A franchise is made up of two parts. The Franchisor and the Franchisee. The Franchisor (the original business owner) provides the Franchisees (the other owners that are buying into the business) with concepts, business models, advertising and more. When it comes to franchises, there are multiple different types. The type of Franchise is based on four basic questions.
Question #1: What does the Franchise offer? Does the franchise sell products, offer a service, or both? The following are three categories that franchises can be split into:
- Service-Based – Offers only services like hair-cutting and performances
- Product-Based – Sells only products like food and furniture
- Service-Product Hybrid – Sells both products and services
Question #2: Who does the Franchise sell to?
Does the franchise sell to consumers, other businesses, employees, the government, or anyone whose interested? There are five different types of categories that franchises can be split into:
- B2B – “Business-to-business” franchises only sell to other businesses. EX:
- B2C – “Business-to-consumer” franchises sell only to consumers. EX:
- B2E – “Business-to-employee” franchises sell to only employees. EX:
- B2G – “Business-to-government” franchise only sell to the government. EX:
- B2M – “Business-to-many” franchises will sell to just about anyone as long as they’ve got someone interested. EX:
Question#3: How many locations does your agreement give you?
The answer to this question is based on how much you invest when you originally buy into a franchise. Each location is considered a “unit”, and depending on how much you spent when you bought into the franchise, you’ll have different rights.
- Single-unit – A franchise with one location.
- Multi-unit – A franchise with multiple locations.
- Area developer – A franchise where the franchisee is hired by the the franchisor to find other franchisees to open up other locations in a given area.
- Master – A franchise where the franchisee is given the right to sign contracts with other investors to open up other locations in a given area (the Master Franchisee will have to pay a portion of the royalties that they receive from the franchisees to the franchisors).
Question #4: When do you need to be there?
How often do you as the owner need to be there for it to operate? Are you there from before it opens to after it closes? Are you there 3 days a week? Or do you rarely come in person at all? How much time does it take up out of your day?
- Full-time – Practically a full-time job. Requires you there whenever it’s open, and often times even when it’s not.
- Part-time – Only takes up a couple of days a week, and doesn’t require you to watch over it constantly.
- Semi-absentee franchises – You rarely have to come in to the office in person. You have other people who do a lot of the day-to-day activities for you, and you only need to focus on the basic overview as an owner.
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