4 Types of Franchise Business Models

Most up-and-coming entrepreneurs working with a shoestring budget prefer a business model that requires minimal capital and high ROI. And franchising is one of the best options for new and experienced businesspeople. However, choosing the best franchising model is recommended so you carefully plan your business venture. The four most common types of franchise business models are:

• Single-unit franchising
• Multi-unit franchising
• Area development franchising
• Master franchising

Let’s dig deeper into franchising, why people choose franchising, and each franchise business model definition. 

What is franchising?

Franchising is a business model where an established brand or “franchisor” gives rights to a business owner or “franchisee. The rights include operating the brand’s name, business model, and intellectual property.

The franchisee typically pays an upfront fee, such as royalty and other additional fees, to operate the business continually. Most franchise business models include training for the new business owner and staff and will require additional or regular training. This way, the brand ensures all its franchise stores are up to par with product quality and customer service standards. 

The franchisee will gain access to these business components from the franchisor:

• Rights to operate under the brand name
• Franchisor’s trademarks
• Training
• Marketing and advertising support from the franchisor
• Operations manual
• Software to operate the business
• Relevant proprietary materials

Why do people prefer franchising?

The benefits of franchising outweigh the standard business model of starting businesses from scratch. On top of getting ongoing support from your chosen franchisor, franchisees will also enjoy these franchising advantages:

• Working with an established brand that has a proven track record in the industry
• Getting quick and high ROI, especially if the brand is well-recognized worldwide or in your chosen territory/area
• Minimal risk compared to starting your own business from scratch since franchisor tips, secrets, and best practices will be handed down to you
• Access to better suppliers and deals
• Simplified procurement processes
• The franchisor manages marketing and advertising campaigns
• Lower operating costs

4 Types of franchise business models

The type of franchising model will depend on the franchisor’s business structure. Do due diligence and market research before committing to a specific franchise. Here are the four types of franchising business models:

Single-unit franchise 

Also known as “mom-and-pop franchising,” a single-unit franchise business model is the most common franchising model. The franchisor typically grants franchisees a right to operate its brand name, branding, trademarks, business operations, and intellectual property. As the name suggests, a single-unit franchise allows franchisees to operate one unit in a chosen territory or location. 

The franchisee also runs the store personally and may keep their existing jobs. One of the benefits of single-unit franchises is more oversight. Since the franchisee is more hands-on, they can monitor the business’s daily operations. Franchisees are also more focused on the store since they only need to manage one unit. 

Multi-unit franchise

When franchisees succeed in their first franchise, the franchisor may allow them to open more units. This is classified as multi-unit franchising. Franchisees may open one, two, or more franchise units in different locations. They also hire managers and an entire management team to monitor day-to-day operations. 

Franchisees in multi-unit franchise business models visit each location and check business operations from time to time. One of the benefits of multi-unit franchising is diversified income. One franchise store might generate more income than the other. This will help franchisees cover the other stores’ overhead expenses if they’re not doing well. 

Area development franchise

An area development franchise specifies a development schedule that outlines the timeline for opening new franchise units within the territory. This schedule typically includes the number of units to be developed and opened within a specific timeframe. Area development franchises often require a significant financial commitment from the franchisee. They typically involve a more considerable initial investment than a single-unit franchise, as the franchisee is responsible for opening multiple locations.

One of the benefits of area development franchising is allowing franchisees to operate at a fast pace. This can offer them quicker ROI compared to multi-unit franchises that let them operate at their own pace. 

Master franchise

Master franchising is similar to area development franchising, which requires franchisees to open several within a specified timeframe. The only difference is the franchisor may obligate the franchisees to sell franchises to other possible franchisees. 

One of the advantages of this franchise business model is more ROI for franchisees. Aside from generating income from multiple franchise locations, they also earn money from selling to other prospective franchisees. 

Conclusion

Researching and choosing the best franchise business model for your preference and budget is a step toward franchising success. If you don’t know which franchise businesses to go with, check out Franchise How for reviews and recommendations.