How to Choose the Right Franchise Model for Your Business
Whether you’re looking to start building a franchise network for your business or join an existing franchise as a franchisee, you already know that franchising is a time-honored strategy for business growth.
However, the franchising landscape features several types of franchise models. These include the business-format model, the product distribution model, and the manufacturing model. And given the range of options available, determining which franchise model aligns best with business needs and objectives can be a challenging task.
In this post, we’ll walk you through everything you should consider when deciding which franchise model is right for you.
The first step is to clearly define your goals for business growth and consider how franchising may help you achieve them.
As a potential franchisor, your primary goal might be to expand your local business into new regions. Meanwhile, if you’re an aspiring franchisee, your goal might be to tap into an established brand so you can skip the difficulties of starting a business from scratch.
You should take time to think about how the franchise model will affect your day-to-day working life and your long-term business prospects. After all, franchising comes with tradeoffs.
For example, franchisors can benefit from faster business expansion and delegate responsibilities to franchisees, but they also must invest additional time and resources into training, supporting, and supervising their franchisees.
On the other hand, franchisees get to piggyback on the brand recognition and established systems of a franchise, but in doing so, they relinquish significant control over their business to their franchisor.
Once you flesh out your business goals, you’ll be in a position to determine whether the realities of franchising are right for you. It could be that establishing or buying a fully independent business is a better solution for your needs.
The next step is to assess the state of your existing business. The goal here is to determine whether your company is in a position to transition into the franchise model successfully.
Here are some core aspects of your business to consider:
- Financial stability: Franchising comes with various costs that can affect profitability. For franchisors, these include the cost of marketing and providing franchisees with training and support. For franchisees, they include initial setup fees and ongoing royalty payments. Your business needs the ability to take on these costs without jeopardizing its financial health.
- Market demand: Even if your existing business has a well-established customer base, you’ll need to conduct thorough market research to gauge whether similar demand exists within the new territories you plan to operate in.
- Systems and processes: Evaluate whether your current business infrastructure lends itself to the franchise model. As a franchisor, you’ll need to replicate your systems and processes at new franchise locations. And as a franchisee, you’ll need the capacity to readily adapt to these new ways of working.
- Brand reputation: The more trust and loyalty people place in your brand, the greater your competitive advantage and the more attractive your franchise will be to new franchisees. Likewise, budding franchisees need to ensure that their own business reputation is strong enough for franchisors to welcome them into their network.
- Legal and regulatory compliance: Whether you are planning to become a franchisor or a franchisee, you’ll need to ensure your business complies with any laws and regulations related to franchising.
We strongly urge you to seek expert advice from franchise consultants, legal experts, and experienced financial advisors to help you assess your franchise readiness.
Once you’re clear on your goals and better understand the status of your current business, it’s time to compare different franchise models to see which one fits your needs.
- Business-format model: The franchisee replicates the franchisor’s entire business concept, receiving ongoing support and supervision to ensure consistency in operations, customer service, and product quality.
- Product distribution model: The franchisor grants the franchisee the rights to sell and distribute the franchise product line within specific territories. Franchisees maintain significant control over their business and often distribute products under their own brand name.
- Manufacturing model: The franchisor grants the franchisee exclusive rights to manufacture their products in line with their established processes. Usually, the franchisor provides ongoing support to ensure manufacturing standards remain consistent throughout the network.
- Conversion model: An existing business in the same industry as the franchise becomes a franchisee. In most cases, the franchisee retains a high level of control over their franchise unit.
- Master model: A franchisor grants the franchisee the rights to operate as a sub-franchisor. The so-called “master franchisee” then develops and manages sub-franchisees within a specific territory.
- Investment model: An investor contributes the necessary capital to set up or buy a franchise unit. These investor franchisees receive royalties as a percentage of the franchise unit’s revenue.
After you’ve identified a franchise model that best fits your business type and your industry’s competitive landscape, you can begin to search for franchising opportunities.
If you want to become a franchisor, you’ll need to conduct market research to determine where there may be demand for your products or services. You may consider setting up a dedicated franchise development team to help you recruit potential franchisees, develop your franchisee support system and fee structure, and build a franchise marketing plan.
If your goal is to become a franchisee, you can either search for franchise opportunities yourself or hire a franchise consultant to help pair you with a suitable franchisor. Make sure you thoroughly research any candidate franchisors, reviewing their performance history, agreement terms, support offerings, business processes, and company culture.
If you conclude that franchising is both conducive to your goals and a viable strategy for your business, it’s time to make your final decision.
We recommend you fully commit to whatever franchise model you think will work best for you. There’s no better way to maximize your chances of long-term success.
Picking the right franchise model sets the stage for a profitable and rewarding franchise venture.
But choosing between different models is easier said than done. Following the steps outlined above will make it easier to reach a well-informed decision about the type of franchise that’s most likely to align with your goals. Remember, the growth of any successful franchise business rests on the foundation of a solid marketing strategy. Of course, if you’d rather outsource that work to the pros, we’d be happy to develop and implement a digital franchise marketing program for you.