This lesson is part of our free Franchise 101 course.
While franchising covers a huge range of businesses and business models, most of them fall into two categories. Understanding those categories can help you to understand what you are getting into, and whether it’s the right franchise for you.
Business Format Franchises
The majority of franchises fit the business format model. Though it’s most often associated with food outlets, it covers a wide range of products and services.
In this format, the franchisor provides a whole system for running the business. This includes the product or service the business will provide, many of the tools to provide that service, and access to the brand, in the form of signage and trademarks. These are features common to any franchise, but in the business format, they come with one more thing, that provides both a support and a restriction.
In the business format, the franchise agreement also includes a predetermined way of running the business. The complete method needed to make an outlet run comes as part of the package. This includes things like operations manuals, staff training, marketing schemes, and software. This gives the franchisor more control over how things are run, and the franchisee more tools to easily get started.
Product Distribution Franchises
In product distribution franchises, the franchisor provides the central product or service and access to their brand, including trademarks, but there isn’t a complete business model. Control and guidance are more limited, leaving the franchisee with more freedom and more responsibility to make choices.
This means that there’s a different relationship between franchisor and franchisee. It’s a supplier-dealer relationship, one that’s most often used in franchises like gas stations, automobile services, and equipment dealers.
Which Model Is for You?
Working out which model a franchise provides is fairly straightforward. Read through the documents they supply, including the franchise disclosure document, to see whether they provide you with manuals and procedures to follow. If they do, then it’s a business format. If they don’t, but you have a product to distribute, then it’s a product distribution deal.
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Which suits you better will depend upon how much you want support and guidance versus how much you want freedom to choose how your business runs. Most people going into franchises accept limitations on their business in return for support, and this may be a factor in why the business format model is more popular. But if you’re just after the brand recognition and aren’t so worried about support, then distribution could suit you.
As always, think about what’s on offer and how it fits your personality and skills. Picking the right franchise isn’t just about the quality of what you’re buying into, it’s about finding a relationship that suits you.