Franchising 101: The Different Types of Franchise Businesses

Franchise concept shown on laptop screen

A franchise is a way for businesses to expand their operations by licensing their rights to franchisees, which are third-party individuals or retailers, who could then utilize the franchisor’s brand name, logo, and business model. If you are planning on franchising your business, before you start figuring out how much does it cost to franchise your business, you have to determine what type of franchise model you’re going to offer.

In general, most franchise businesses fall into the following categories:

  • Business Opportunity Ventures – In this franchise model, franchisees would distribute services or products on your behalf, and you get a commission from a percentage of their sales. Business opportunity ventures typically include Mark Kay or Avon salespersons and vending machine businesses.
  • Business Format Franchises – With his franchise model, you’d be letting franchisees use your business model, brand name, logo, as well as provide initial and continuing support service including staff training, equipment, site selection, and other things needed to establish and run the franchise. Think restaurants like McDonald’s, which is probably one of the most popular franchises in the whole world, Burger King, Pizza Hut, and plenty of chain stores.
  • Manufacturing Franchise – Basically, franchisees obtain rights to manufacture the product of the franchisor, under license of course, and sell the product under the brand name and trademark of the franchisor. Common examples include gasoline companies and soft drink companies like Coca Cola.
  • Trade Name or Product Franchise – Franchisees buy your products so that they could sell and distribute them. You maintain a substantial amount of control over the sale and distribution of your products and franchisees would need to purchase minimum inventory amounts. Think Nike and Adidas and other brand name stores.

It’s likewise vital to note that bigger franchises might involve other roles within the franchisee-franchisor relationship. Generally speaking, this happens when franchisors are looking to develop or open markets. Due to this, franchisees would be allowed to administrate, distribute, and/or sell sub-franchise rights.

Bearing all this in mind, when setting up your franchise business, seek advice from an experienced franchise development specialist to figure out all the business opportunities that would be most appropriate for your specific situation.