Understanding different franchise models

FRANCHISING is an excellent avenue to explore when starting a business. And whether it’s buying into an existing franchise or opening a new business, there are a number of things to understand and consider about franchising before beginning.

While the broader concept of franchising is pretty universal, individual business models vary significantly.
The two most prominent models are product or trade name franchises and business format franchises.

Product or trade name franchises are centred on a trademark or brand, and not on a comprehensive business system. The guidelines for how franchisees in this model can operate their businesses and sell their products tend to be more lenient, giving the franchisee more flexibility and autonomy.

The franchisor earns income from the upfront fees paid to use the brand name or to acquire the product, with additional profits coming from selling goods and services to the franchisee network.

Car brands often apply this model to their franchising options. Vehicle dealership franchisees can run their individual businesses without needing to meet a particular set of operational rules and they get the benefit of brand affiliation and access to branded automotive products.

In contrast, business format franchises tend to be more rigid and stipulate a particular way of conducting business that needs to be followed.

The benefit for agreeing to abide by a more controlled system is that the franchisee enjoys access to a product or service that is accompanied by a programme and operational method of getting that product or service to market.

This means that in addition to being allowed to use a particular brand name or trademark, the franchisee also gets an extensive range of additional resources and a blueprint for operational success from the franchisor.

Things like promotional tools, a policies and procedures manual, training, quality control resources, market research, buying power and continual guidance and support are just a few of the benefits of this franchise model.

So when exploring the option of franchising as a way to start or own a business, it is important to understand the advantages and restrictions of each model and to assess which model is also a good match in terms of personality, goals, dreams, and vision.

* Pieter Scholtz is the Co-Master Franchisor for ActionCOACH in Southern Africa.






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