Franchising is growing in popularity. In 2022, there were nearly 800,000 franchise establishments in operation, employing nearly 8.5 million people in the United States.
A franchise is like a partnership where a person gets to run their own business using the name, products, and systems of a bigger organization. It offers a lessened risk for new entrepreneurs, given the existing trust and stability of the more well-known brand.
What many people don’t know when they’re getting started is that there are many types of franchise businesses available, and they all vary in their uses.
Job franchises are one of the most common types of franchise businesses.
This type of franchise is a model which is designed to be owned and run by one person—an owner-operator—or with minimal additional staff. Typically, this is a home-based or low-investment franchise type.
You would handle all of the day-to-day operations and be in charge of all business decisions.
Some common examples of this type of franchise are:
You’ll know Job franchising is for you if you have:
Product franchising is when a company lets you sell its products under your own business name.
The company permits you to use its trademark, packaging, and ads. You then sell and distribute the products while the franchisor provides inventory.
There are a lot of things that make product franchising a great choice for someone getting started. You’ll know product franchising is for you if you have:
Common examples of product franchises include car dealerships, computer stores, and vending machines.
A business format franchise is the most popular type of franchise. It's when a larger organization lets you use its name, products, and ways of doing things. You will get a guide that shows you how to run the business, and you must follow the franchisor's rules.
You have to pay a fee, usually a percentage of your sales, to be able to use the franchisor's name, products, and ways of doing things.
Although business format franchises are the most common, they might not be for everyone. You’ll know this franchise type is for you if you have:
This type of franchise can be found in many different types of businesses like retail, service, and food service.
Examples of business format franchises are fast food restaurants (McDonald's, Subway, KFC), clothing stores (American Eagle, Plato’s Closet, Gap), and fitness centers (Gold’s Gym, Anytime Fitness).
An investment franchise is like a business format franchise, but it requires a lot more money to start.
This type of franchise sometimes involves buying the rights to sell a company's products in a certain area. Because of this, it can be harder to start this type of franchise compared to others.
The person who starts this type of franchise often has to invest a lot of money and resources to run the business. This type of franchise is more about making a profit, and you usually don't have to be as involved in the day-to-day running of the business.
You’ll know investment franchising is right for you if you have:
Industries like hospitality (hotels, spas), high-end automotive dealers (Lamborghini, Rolls Royce), and business consulting are common examples.
A conversion franchise involves your existing business assuming the franchisor's trademark, products, and business systems in exchange for a franchise fee. This allows you to take advantage of extra support systems and resources.
Some examples of common conversion franchises include real estate (Century 21, Royal Lepage), florists (Flowers Forever, 1800Flowers), and hair or nail salons (Great Clips, Supercuts).
Conversion franchises are the right pick for you if you have:
Remember, though, converting to a franchise location may also turn off some customers that were interested in the independent nature of your previous brand.
A social franchise is a type of franchise in which you are aiming to achieve a social or environmental goal. This could be something like improving healthcare or promoting sustainable development.
In a social franchise, you pay for the right to use the franchisor's trademark, products, and business systems.
This type of franchise is becoming more common in the non-profit and social enterprise sectors. Some common examples of social franchises include:
Social franchises are a unique niche, so you’ll need things like:
Often, a potential franchisee is already running a non-profit organization or social enterprise that is aligned with the same goal as the franchisor. Once joining, you are responsible for implementing the franchisor's established procedures and guidelines.
A management franchise is one of the franchise types where you get management and operational support. This is often in exchange for a fee or a percentage of gross sales.
In a management franchise, you handle the ownership and operation but receive support and guidance in areas such as marketing, training, and operations.
This type of franchise allows you to benefit from the franchisor's reputation and experience.
These are most commonly found in the hospitality industry, such as hotels, restaurants, and bars.
Management franchises are the right fit for you if you have:
A manufacturer franchise is a type of franchise where a manufacturer of a product or service gives you the right to sell or distribute them.
In a manufacturer franchise, you handle the sales and distribution of the franchisor's products or services. They then provide you with the necessary training, marketing, and support to help you be successful.
This type of franchise is common in industries such as automotive, home improvement, and equipment.
Examples of manufacturer franchises include automotive companies like Ford, home improvement locations like Home Depot, and industrial equipment suppliers.
You know that manufacturer franchises are the right choice for you if you have:
There are several different ways a franchise agreement can be constructed.
Single-unit franchises are a type of franchise where you are granted the right to operate one location. The franchisor provides you with the necessary training, marketing, and support to help you be successful.
These types of franchises are common in industries such as retail and hospitality.
Multi-unit franchises are similar; however, you are granted the right to operate multiple locations. This process can help ensure customers experience a certain level of consistency no matter where they visit.
Area development is a broad name for all types of franchises where you are given the right to develop a specific geographic area. You do this by opening a certain number of franchise units over a certain period.
You would handle the development of the area as well as operating each unit.
A master franchise is a type of agreement where you are given the right to develop a specific area by recruiting, training, and supporting other franchisees in that area.
You act as a representative of the franchisor in that area and are responsible for the development and expansion of the system. They provide you with the necessary training, marketing, and support to help them to be successful in their business.
As you can see, there is a lot to know about the different franchise types!
Now that you have a good understanding of what each process involves, you’ll be able to choose the right one for you. Good luck!
Javier is an experienced franchise industry professional with a focus on development, operations, and performance. With almost a decade of experience in the industry, he has witnessed both the successes and failures of franchise owners. Javier strongly believes that buying a franchise is not just an investment, but a life-changing event that presents a unique opportunity for personal and professional growth. He enjoys helping aspiring franchise owners navigate the decision-making process and increase their chances of success.
