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What are the two types of Franchises?
Becoming a franchisee is often a good choice for entrepreneurs starting out. Franchises give business owners the opportunity to see how they like running their own operation while being given plenty of support through established brands, products, services, and processes. Some people assume that all franchises are, essentially, the same.
However, not all franchises are the same. Firstly, there are individual franchisees. That is, the ones who pay for a license to use the business model put in place by the franchisor. They can be part of either a business format franchise or a product and trademark franchise. This blog will explore these two prominent types of franchises so you might come away with a better idea of which model you might want to use.
Business Format Franchise
Many well-known franchises like McDonald’s, Starbucks, and Subway use the business format type of franchising. With this type, franchisees will pay fees to use the trademark, products, and services exclusively held by the franchisor. Furthermore, you can recognize this uniformity because a burger purchased at a McDonald’s in Maine will be essentially identical to one purchased in California. A business format franchise is appealing for many first-time entrepreneurs due to the level of support and involvement from the franchisor.
Product and Trademark Franchise
There is a much greater level of flexibility for franchisees using a product and trademark franchise. With this type, franchisees receive the actual products and other physical accoutrements to run their location. The same as business format franchisees. However, they are given much more freedom when it comes to actually running their specific location. A product and trademark franchise is often referred to as a “product distribution” franchise. This is because the relationship between franchisee and franchisor can be described as a supplier-dealer relationship.
Product and trademark franchisees do not have to commit the same amount of startup costs that business format franchisees must have upfront. Another benefit with this type of franchise is that franchisees are given a great amount of freedom when it comes to the business’s operations. A few well-known examples of product franchises include General Motors, Ford Motor Company, Exxon, Coca-Cola, and beer distribution companies.
Apart from these two types of franchises, you can also choose a third type of franchise called a “management franchise.” However, the two types discussed in this blog are the two major franchise types.
Next steps
Trembly Law is here to help. If you need to discuss the best franchise type for you or have any other business legal needs, contact us at 305-431-5678 today for a virtual, or in-person consultation.
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