A franchise is not a term that can remain unheard of in this global world. All around you, you can see the entire city riddled with business places that are actually franchises and are operating as a local shop for a global level company. But most people still don’t know what types of businesses are franchises. Believe it or not franchising has been around since the ancient Chinese era when landlords used to lease out their lands to peasants for a certain amount of fee.
What Types of Businesses are Franchises
There are a lot of different types of franchises available for those seeking to start their own business place. According to an estimate, franchises make up for 40% of the total retail sales in the economy of the United States. Do you have plans to buy a franchise and open up a franchise business? You will be surprised to know that there are several types of franchises out there that you can buy. This article will help you find out more about what types of businesses are franchises and give you all the information about them before you make a decision to buy one of your own.
Buying a franchise is one of the most popular forms of business in the present era. Franchises give a contribution of at least $2.1 trillion in the US economy, so it is very crucial that a franchise owner maintains the quality of products or services as per the standards laid out by the franchisor and follow all their guidelines. When you go for a franchise business, the franchisee earns the right to sell an already successful product or service owned by a business and, thus, becomes a part of it.
What Types of Businesses are Franchises
The modern-day business franchising is assumed to have started by Benjamin Franklin, who signed the first franchise agreement with Thomas Whitmarsh in 1731 to obtain legal permits for providing printing services in Charlestown, South Carolina. Since then, a lot of franchises have opened up and today, there are thousands of franchises spread across hundreds of industries and sectors. Now when you ask what type of businesses are franchises, then the answer will be almost every one of them.
According to a report published by the U.S. government for the year 2018, the franchise industry directly or indirectly engaged and employed about 21 million U.S. citizens and generated an economic activity of a whooping $2.3 trillion. This shows the importance and present shares of franchise businesses in the U.S. economy. Franchising has greatly contributed towards the overall development of the US economy and has been established to be quite a lucrative region for people seeking both freedom and financial stability.
What is a Franchise?
A franchise is a business place that is operated by an individual or a group of people known as franchisee by using the brand name, trademark and business model of a well established big company known as a franchisor. In this type of business model, a legal and commercial relationship is maintained between the board of the big company (the franchisor) and the group of individuals using the brand name (the franchisee).
In simpler terms, the franchisee is given a legal license to make use of the franchisor’s brand value, trade name and operating systems. In return for the legal rights to use the franchisor’s business model and to be provided with requisite training, support and operational instructions, the franchisee has to pay a franchise fee (sometimes also known as a royalty) to the franchisor. The franchisee also has to sign a contract known as franchise agreement in which they have to agree to operate their business in consonance with the terms specified in the contract. Thus, a franchise can be thought of as acting as an individual branch of the big brand franchise company.
You must be having a question in your mind that what are the types of franchises. Before buying into a franchise you need to fully understand what type of franchise it is and then assess if it suits your requirements or not. Here are the various franchise types:
What are the Types of Franchises
The market is flooded with many different types of franchises that you can review and choose from. We have made a list to help you decide which would be the most suitable type of franchise business according to your needs and future goals. The different types of franchise businesses can be classified on the basis of different characteristics.
- Manufacturer Franchise: The are very common in the food and beverage industry. Owning this type of franchise allows the franchisor to manufacture the product in his factory under a license as per the franchise contract. Then the products are sold using the franchisor’s trademark and the company name. Along with a franchising fee, the franchisor may also charge a fee on the number of product units sold. Beverages industry and petroleum industry have numerous prevalent manufacturer franchise.
- Product Franchise: As per the franchise agreement, the franchisee is not allowed to produce the product by themselves but can only acquire them from the franchisor that has full control of the distribution method of the product adopted by the franchisee. In return for the selling rights, the franchisee needs to pay a certain amount of fee to take benefit of the franchisor’s brand name, reputation among consumers and trademark. Prevalent between manufacturers and resellers, the functions of a product franchisee are limited to only the sales and distribution of products and services.
- Business Format Franchise: One of the most popular franchise type, business format franchise gives the franchisee a proven business model developed and owned by the franchisor. The franchisor is also given assistance to provide training to employees, installing machinery and setting up the business overall. In return for this, the franchisee has to pay a royalty fees to the franchisor. The examples of such types of franchise business are jewelry stores and apparel brands.
- Business Franchise Venture: A franchisee which owns the rights to a business franchise venture distributes products or services, on behalf of the franchisor, to a certain customer base, provided by the franchisor, to maintain its customers. The franchisee gets to keep a certain percent of the sales as a commission. A perfect example of business franchise venture are vending machines that are owned and installed at public places by the franchisee. They are given a fixed percentage on every sale made through them.
What Types of Businesses are Franchises | Which business are mostly franchises?
Another question that may come to your mind is what type of businesses have franchises. Mostly service providing businesses and product selling businesses make up the chunk of what types of businesses are franchises. For example, fast food joints like McDonald’s, KFC convenience stores like 7 Eleven and even a car dealership like Toyota are actually franchises and operate under their respective parent companies.
Although any company can become a franchisor and sell its business as a franchise, when we think of what types of businesses are franchises, we can conveniently say that these include mostly places which give specific services to customers.