Franchise Chatter’s 10 Franchises with the Best Business Models (and 1 with Possibly THE Worst)

A business model has been defined as a plan implemented by a company to generate revenue and make a profit from operations.  A good business model greatly improves the odds that a franchisee will be successful.  However, if demand for the product or service in a given territory is weak, the location chosen is poor, or the franchisee is under-capitalized or lacks passion for the business, even a good business model can’t prevent an enterprise from failing.  Think of a good business model as a solid foundation on which a profitable business can be built.  The following is Franchise Chatter’s list of 10 franchises with the best business models, and 1 franchise with possibly THE worst business model of them all.

10 Franchises with the Best Business Models:

(1) Anytime Fitness franchise and Snap Fitness franchise (tie)

Anytime Fitness and Snap Fitness have nearly identical business models.  They franchise compact, neighborhood-style, less frills fitness clubs where members have 24/7/365 access to all of the clubs in the chain worldwide, even when the clubs are unstaffed.  With proprietary software, security, and surveillance technology — specifically, remote monitoring of the club via a closed circuit television system, coupled with personal security devices — members can work out anytime that’s convenient for them, while the owners can operate the clubs without additional staffing.

Another very attractive feature of the business model is the recurring revenue stream through ongoing membership fees.   With health and fitness becoming an essential part of most people’s lifestyles, it is very common for satisfied members to remain with the same club for years.

Finally, both Anytime Fitness and Snap Fitness charge their franchisees a low fixed royalty fee ($499 a month for Anytime Fitness and $449 a month for Snap Fitness), as opposed to a percentage of gross sales, which is the standard for most franchises.  This way, as the club matures and attracts more members, the owner gets to keep a greater share of the revenues.

Curious about the average member numbers, projected revenues and projected earnings for Anytime Fitness clubs?  Please click here.

Let’s Take a Closer Look at the Average Member Numbers, Projected Revenues and Projected Earnings for Snap Fitness Clubs. Click here.

(3) Matco Tools franchise

(4) Snap-On Tools franchise

Matco Tools and Snap-On Tools sell a huge selection of tools and equipment to professional users, especially those in the automotive industry.  Franchisees make regular sales and service calls to customers in their territory in a custom designed truck, which is a mobile showroom, warehouse, and office all rolled into one.  This unique distribution system helps franchise owners reduce business costs and establish personal relationships with each of their customers, who are pre-identified and qualified by Matco and Snap-On respectively.

Each franchisee has an exclusive territory and a protected “List of Calls,”  giving the franchisee a built-in customer base that only he (or she) has the right to sell to.  (Of course, Snap-On and Matco compete in the same category, so their respective franchisees will be in direct competition.)

Between Matco and Snap-On, the edge goes to Matco because they charge their franchisees no initial franchise fee, no monthly royalty fees, and no monthly advertising fees.  Matco makes money solely on the sale of their products.  Snap-On Tools charges a low initial franchise fee ranging from $5,000 to $15,000 (depending on the size of the territory) and a token monthly franchise fee of $102 per month.

(5) Massage Envy franchise and Elements Therapeutic Massage franchise (tie)

Massage Envy and Elements Therapeutic Massage are niche players in the fast growing spa and wellness industry.  They specialize in massages — Elements focuses on therapeutic massage, while Massage Envy offers a wider menu of styles (and has even begun offering facials in certain locations).

The beauty of this business model is the consistent, recurring revenue from the sale of memberships.    For a low monthly fee ($59 to $69 a month for Massage Envy; $55 to $59 a month for Elements, depending on the location), members can enjoy one massage a month (with the option to purchase additional sessions at a discounted rate).

Since Massage Envy and Elements Therapeutic Massage are in the service business, the only major expenses are rent, payroll, and marketing.

Curious About the Average Monthly Revenue and Gross Profit Percentage for Elements Therapeutic Massage Studios in 2010? Please click here.

(7) MyDestination franchise

MyDestination is an online travel brand that competes with Lonely Planet and Trip Advisor, through local travel experts (franchisees) in major travel destinations around the world.  Franchisees operate local online travel guides for their cities or countries, but they only need to focus on 2 major areas:  producing great content (text and videos) for their site and getting local advertisers to purchase ads or business listings.  MyDestination’s corporate staff in London, UK and Marbella, Spain take care of the website templates, design the ads for the local clients, and promote the sites through search engine optimization and pay-per-click advertising (all of which are included in the initial franchise fee and monthly royalty fees).

As more and more franchisees join the system, the brand gets better known and traffic to the site increases exponentially.

Another very attractive feature of the business model is the revenue sharing (50% to franchisees, 50% to MyDestination.com) from hotel bookings through the site’s new hotel price comparison booking engine.  This feature is now available on the Marbella site and will soon be rolled out to all the destinations.

(8) Subway franchise

The Subway business model is attractive because of the streamlined operations.   Almost all of the ingredients used are fresh and require no cooking in the store, aside from the baking of the bread and cookies.  Of course, there is nothing proprietary in the business model of a sandwich shop.  But Subway has so many franchisees around the world contributing to a pooled marketing and advertising fund, that it would be difficult for a smaller chain, much less a mom-and-pop operation, to compete with the brand equity of Subway.

(9) Papa Murphy’s franchise

Papa Murphy’s business model is unique because it is just a take-out business, with no baking done in the store.  Customers take home a freshly prepared — but uncooked — pizza and they bake the pizza at home. This pizza franchise is easier to run and requires less investment because there’s no pizza delivery, no ovens, and no dine-in component.

(10) Rasoee franchise (Canada)

Rasoee’s business model is unique because it is an Indian fast casual restaurant, but no cooking is done on the premises.   All the food is prepared in a central kitchen and delivered to the various restaurants, all of which are located in Vancouver currently.  The business model not only saves the franchisee a significant sum on payroll expenses for the kitchen staff,  it also allows Rasoee to operate in various locations not intended for restaurants (for lack of venting) and enables them to keep build out costs low.

Chutney Joe’s, a US-based franchise featured on FranchiseHelp, has a very similar business model.

Franchise with Possibly THE Worst Business Model:

The UPS Store franchise

The UPS Store business model is inherently flawed because there is a very clear case of channel conflict between the franchisor (UPS) and the franchisees.  Franchisees get discounted rates on UPS shipping and then charge their customers The UPS Store retail rates, profiting from the difference.   The only problem is that customers of UPS can easily print out their own shipping labels online and drop the packages off at their local UPS Store.  Instead of earning a decent profit by charging The UPS Store retail rates, franchisees are compensated just a dollar or two for each of these drop offs.

There is widespread frustration among customers of UPS — who demand to be treated like regular paying customers of the store (asking for free UPS shipping boxes, for their boxes to be taped up, etc.) — and among franchisees, who are understandably irritated at having to serve the customers of UPS who have all but bypassed their store in the transaction.  The customers lose, the franchisees lose.  The only real winner is UPS, which has gained thousands of staffed drop off locations nationwide — earning UPS the business of  customers who print shipping labels online before dropping off at a retail store right in their neighborhood.

I was a former franchisee of The UPS Store and my experience running my franchise was positive overall.  I met so many amazing franchise owners — many of whom were fabulously successful despite the flawed business model (because they built their businesses on mailboxes, notary services, and document services).  And The UPS Store corporate staff genuinely tried to find ways to help franchisees become more profitable.  But still, there is something seriously wrong with a business model where the franchisor and franchisees are direct competitors.

Related Articles from The Franchise Chatter Blog:

• Anytime Fitness:  What You Need to Know Before Investing in an Anytime Fitness Franchise
• Anytime Fitness:  Franchise Chatter Exclusive:  Q&A with Chuck Runyon, Co-Founder and CEO of Anytime Fitness
• Anytime Fitness:  Franchisee Spotlight:  Colleen Braun, Owner of Anytime Fitness Clubs in Madelia and Springfield, Minnesota
• Anytime Fitness:  Franchisee Spotlight:  Mark Stevens, Owner (with his wife Kristie) of 6 Anytime Fitness Clubs in Mississippi and Alabama
• Snap Fitness:  Franchise Chatter Exclusive:  Q&A with Peter Taunton, Founder and CEO of Snap Fitness
• Matco Tools:  The Matco Tools Franchise Opportunity: No Franchise Fees, No Royalty Fees, No Advertising Fees, No Real Estate Costs
• Snap-On Tools:  What Every Prospective Franchisee Needs to Know Before Investing in a Snap-On Tools Franchise
• Massage Envy:  What I Like (and Don’t Like) About the Massage Envy Franchise Opportunity
• Massage Envy:  Massage Envy Spa’s Average Unit Volume Tops $1M, Says its President Dave Crisalli in this Exclusive Interview
• Elements Therapeutic Massage:  Exclusive Q&A Interview with Stephen Stabile, Franchisee of Elements Therapeutic Massage in Middleton, MA
• MyDestination.com:  MyDestination.com:  An Online Franchise Opportunity that Competes with Lonely Planet and Trip Advisor
• MyDestination.com:  Franchise Chatter’s Exclusive Interview with James Street, Co-Founder of MyDestination.com
• MyDestination.com:  MyDestination.com Franchisee Spotlight:  Fay Jones (with Co-Owner Jessica White) of MyMarbella.com
• Subway:  Why It’s So Difficult to Open a New Subway Franchise Today:  A Subway Franchise Review
• Papa Murphy’s:  The Top 4 Pizza Franchises:  A Comparison By the Numbers (Part 2 of 2)
• Rasoee:  Exclusive Q&A Interview with Shawn Pattison, VP and General Manager of Rasoee (An Indian Fast Casual Franchise)
• The UPS Store:  What It Takes to Have a Profitable UPS Store Franchise