What are the different Franchise types?

As a prospective franchisee, before you start looking at specific opportunities and investigate their advantages and disadvantages, you should familiarise yourself with the various franchise types you may come across.

Types of franchises

The franchise type identifies the nature of the work that the running of the franchise entails. There are five categories:

1. Retail Franchise

In a retail franchise, the franchisee will generally occupy retail premises and sell products or services. The business depends totally on the location of the premises, with sales coming from walk-in consumers.

In this situation, the franchisee will:

  • Sell a product or service to end-users.
  • Operate from locations with high foot traffic like shopping malls.
  • Depend on walk-in customers for sales.
  • Manage the business during retail hours, often stretching into long days and weekends.
  • Be dealing with the public; this requires the franchisee to be a people person.
  • In most instances, staff will have to be employed, requiring the franchisee to be a good manager of people.
  • In some cases, prior experience in the type of business is essential.

 

2. Management Franchise

In a management franchise, the franchisee is expected to market and manage the business while trained staff carries out the actual business activity.

A good example of such a business is a plumbing repair franchise. Orders are obtained via the telephone and trained repair teams carry out the work at customers’ premises. Many business-to-business activities are handled in a similar manner, except for the fact that a travelling sales force will be employed.

In this situation, the franchisee will:

  • Need premises located in an office block or an area zoned “light industrial”.
  • Be selling a product or perform a service, on occasion a combination of the two.
  • Market and manage the business during regular office hours (except in instances when the service involves emergency response).
  • Employ and manage skilled staff.
  • Need to do quotations and administer workflow. Depending on the complexity of the work to be carried out, in some instances, the training provided by the franchisor will suffice, in others, prior experience in the particular field will be required.
  • Deal mainly with businesses, to a lesser degree with the public. The franchisee needs to be able to handle this effectively.

 

3. Single Operator Franchise – Manual

In this franchise format, the franchisee carries out the work him/herself. This usually involves the carrying out of a trade, or the selling and supply of products or services. It may be a mobile set-up and could be home-based or operated from small office premises.

In this situation, the franchisee will:

  • Need to acquire the expertise required to sell and install a product or perform a service.
  • Work on his/her own, at least initially. As the business grows, it may become necessary to employ staff and the franchise could develop into a management franchise.
  • Market the franchise locally to generate a steady flow of business.
  • Deal with the public as well as with businesses.
  • Conduct much of the business via the telephone.
  • Be mobile, perhaps van-based and undertake administrative chores from home. On occasion, small industrial premises may be necessary.
  • On occasion, such franchisees may be required to wear a uniform that reflects the network’s corporate identity.
  • Have flexible business hours.

 

Important note: Although this business format exists in South Africa, it generally lends itself better to a distributorship. The reason for this is that a fully-fledged business format franchise may be too expensive to operate. There is a notable exception, though: small fast food franchises, for example hot dog stands, often depend on their success on the franchise format for brand recognition and quality assurance. A good example is the Hot Dog Cafe, which is a successful franchise chain.

4. Single Operator Franchise – Executive

In this franchise format, the franchisee carries out the work him/herself. This usually involves the carrying out of a professional service or the selling and supply of products that require professional input and/or user-support and troubleshooting. The business could be home-based or operated from small office premises. The type of work is executive, examples are bookkeeping services, tax advice, business consulting, training or the supply of comprehensive office solutions for small businesses.

In this situation, the franchisee will:

  • Need to learn to perform the service, for example to write up the client’s books, usually at the client’s premises.
  • Work on his/her own, at least initially. As the business grows, it may become necessary to employ staff and the franchise could develop into a management franchise.
  • Market the franchise locally to generate a steady flow of business.
  • Deal mainly with businesses, but sometimes with the public as well.
  • Conduct much of the business via the telephone and through electronic communication facilities.
  • Work from home or have small office premises but essentially be mobile.
  • Work regular office hours, at least most of the time. Important note: At this level, franchises have the potential to become extremely successful.There are two good reasons for this:
    • On the input level, networks find it easier to develop proprietary materials, for example computer software, and set up intranets, essential in today’s business climate but generally out of the reach of individual operators.
    • On the output level, the target customer base, usually SMEs, is attracted by a network’s branding activities, which imply a strong component of quality assurance and fidelity. They are also reluctant to deal with large professional firms, considering them too expensive for their needs. Rather, they prefer to deal with franchisees, small businesses themselves.

 

5. Investment Franchise

This term means that a wealthy investor, often a corporate entity, makes a substantial investment in a franchise without having any intention of working in the business. Management of the franchise will be delegated to an executive team that is responsible for day-to-day operations. This format is used, for example, in the hotel business. It is not very popular with franchisors of smaller concepts. The reason for this is that the physical presence of the owner “behind the counter” is what customers want. Experience has also shown that the owner’s presence makes the business successful.

Summary

The above gives an inkling of how versatile franchising really is. You will read more about the all-important step of assessing, firstly, whether franchising is the optimal route for you, and secondly, how to choose the franchise that meets your needs by evaluating a franchise offer.