Most people have a general understanding of what a franchise is, but not only is there more to franchising than meets the eye, but there are also several different franchise models that you can use to expand your business and create extra revenue. Keep reading our guide to discover which franchise model suits you best.
A franchise business model is a type of business arrangement in which the buyer (known as a franchisee) is granted the right to operate a business using the brand names, trademarks, products and processes of an established brand (owned by the franchisor). Franchise models are enduringly popular as they offer entrepreneurs a way to start a business with the support, resources and good reputation of an established brand.
There are several different franchise model types, each with their own advantages and disadvantages. You may even choose to add your own personal touch to a model that best represents your business, creating a new, individualised system! Some of the most common types include:
In this very common type of franchise model, the franchisor provides the franchisee with a complete business system, which includes branding, products, services and operational procedures. The franchisee is responsible for running the day-to-day operations of the business, but they usually follow the franchisor’s established system. McDonald’s is a good example of this model.
In this model, the franchisor grants the franchisee the right to distribute its products, but they do not control how the franchisee operates their general business activities. The franchisee may be required to agree to a few guidelines though, such as whether they can sell other brands or only sell the franchisor’s brand exclusively. There may also be limits on how the franchisee uses the franchisor’s branding and trademarks. This model gives the franchisee a little more independence than the business format model, but is still highly beneficial to both parties. You’ll see it used by a lot of brand-specific car dealerships.
In a management franchise, the franchisor provides the franchisee with a system or format for managing a business, but does not provide any products or services. This type of franchise model is often used in industries like postal delivery and retail, where the franchisee manages the day-to-day operations of the business while following the franchisor’s established system.
In this type of franchise model, an existing business converts to a franchise model with an established franchisor. This can be a cost-effective way for existing businesses to expand and take advantage of the benefits of a franchisor’s branding, products and operational procedures. Many product distribution franchises are established via conversion franchises.
A franchise revenue model refers to the ways in which franchisors generate revenue from franchisees. The most common revenue model is the franchise fee, which is a one-time ‘buy-in’ fee paid by the franchisee to the franchisor in exchange for the franchise rights (the right to use the brand and business system etc). You may also generate revenue from the sale of products or services to franchisees (for example, a franchisor may require franchisees to purchase equipment, inventory, or marketing materials from the franchisor at a markup). Franchisees might also pay ongoing royalties or advertising fees as a percentage of revenue or a flat fee, depending on the franchise type.
Regardless of the type of franchise model you choose to establish, there are several key advantages that make franchising an attractive option.
Franchising allows you to quickly expand your business, brand reach and customer loyalty with less fuss and capital than you would require if you were to open additional self-owned locations. You also enjoy the benefits of the start-up capital, revenue streams and resources of others to grow your brand. If a franchisee is converting their existing business to your franchise, you will gain immediate territory and may gain large numbers of existing customers and an established good reputation. As a bonus, you’ll also be able to focus your attention on the strategic aspects of your business (such as marketing and expansion) while leaving day-to-day operations to your franchisees.
This can free up your time and resources to concentrate on growing the brand and increasing its profitability, as well as allowing you to pursue personal time away from your business.
If this sounds appealing to you, we can help. Give us a call on 1300 960 136 or fill out our contact form and we can help you choose a franchise model that best fits your business.