In my over 30 years of experience as a franchise consultant, people frequently want to know if there are different approaches to franchise your business.
There are three main ways to franchise your business. Each entails a different type of Franchise Agreement:
- Individual franchising
- Area development franchising
- Master franchising
There are pros and cons to each approach to franchise your business.
The most common form used to franchise your business is individual franchising. The franchisee is allowed to open a single franchise operation, often in a protected territory. If the Franchisor wants to sell additional franchises to the particular franchisee, it can do so.
The area development approach to franchise your business grants the area developer a protected geographic territory in which to open a negotiated number of franchises on an agreed-upon timetable. With this approach to franchise your business, you may revoke the remainder of the territory if the franchisee does not meet the timetable.
When utilizing master franchising to franchise your business, you give the master franchisee the right to sell franchises, train and provide on-going servicing. The master franchisee retains the majority of the funds generated from the initial franchise fees and royalties.
There are benefits to utilizing an individual program to franchise your business:
- It is easier to manage your growth.
- Considerably more people have the funds and skills necessary to operate one location than those who are able to handle multiple locations.
- An owner-operator is often the most productive location manager.
- There is no manager’s salary to pay, so the franchise may be more profitable.
- By taking this approach to franchise your business, you can learn if the person can indeed operate more than one location before committing to a multi-unit arrangement.
- If problems develop with a particular franchisee, they impact only one location.
- Selling only a few franchises your first year gives you the opportunity to master your new responsibilities as a Franchisor.
There are also negatives to taking the individual strategy when you franchise your business:
- It can be more economical to train and service multi-unit operators than a larger number of individual franchisees.
- Selling individual franchises may result in slower overall growth.
- More franchisees can lead to more organizational challenges.
If you franchise your business, study the three franchise methods and adopt those best for your company. You may incorporate different strategies at different stages of your franchise program.