TYPES OF FRANCHISES
Franchising is a relatively flexible method, and just about any type of business can be franchised. There are many types of franchises, that can be categorized according to different factors, like investment level, franchisor’s strategy, operations, marketing and relationship models, etc. The five major types of franchises are: job franchise, product franchise, business format franchise, investment franchise and conversion franchise.
Typically, this is a home-based or low investment franchise that is taken by a person who wants to start and run a small franchised business alone. Franchisee usually has to purchase minimal equipment, limited stock and sometimes a vehicle. A wide and diverse range of services fall into this group, like travel agency, coffee van, domestic lawn care service, plumbing, drain cleaning, commercial and domestic cleaning, cell phone accessories and repair, real estate service, shipping service, pool mainatanance, corporate event planning, children’s services, etc.
Product (or Distribution) Franchise
Product-driven franchises are based on suplier-dealer relationships, where franchisee distributes the franchisor’s products. The franchisor licenses its trademark but usually does not provide franchisees an entire system for running their business. Product franchises deal mainly with large products, such as cars and car repair parts, vending machines, computers, bicycles, appliances, etc. Product distribution franchising represents the highest percentage of total retail sales. Some well-known product distribution franchises are Exxon,Texaco, GoodYear Tires, Ford, Chrysler, John Deere and other automobile producers. Sometimes franchisor licenses not only distribution, but also part of the manufacturing process, like in the cases of soft drink manufacturers Coca-Cola and Pepsi.
Business Format Franchise
The business format franchisee also gets to use the franchisor’s trademark, but more importantly, it gets the entire system to operate the business and market the product and/or service. The franchisor offers a detailed plan and procedures on almost every aspect of the business, provides initial and ongoing training and support. Business format franchising is the most popular type of franchise system and the one generally referred to when talking franchising. Businesses from more than 70 industries can be franchised, and the most popular are fast food, retail, restaurant, business services, fitness and other.
Typically, these are large scale projects which require a large capital investment, such as hotels and the larger restaurants. The franchisees usually invest money and engage either their own management team or franchisor to operate the business and produce a return on their investment and capital gain on exit.
Conversion franchising is a modification of standard franchise relationships. Many franchise systems grow by converting independent businesses in the same industry into franchise units. The franchisees adopt trademarks, marketing and advertising programs, training system and critical client service standards. They also usually increase procurement savings. The franchisor in this model has a potential for very rapid growth in terms of units and royalty fee income. Examples of industries that extensively use conversion franchising are real-estate brokers, florists, professional services companies, home-services, like plumbing, electricians, air conditioning, and so on.