One of the first things you need to do when franchising is to choose the structures under which you’ll offer franchises. This choice has a major impact that affects a number of things in the future, including support requirements, targeting franchisees, staffing, and cost structure. Important stuff – so make sure you invest some time and thought into these choices.
Where should you begin? First, consider the various structures available:
Single-unit or individual franchising grants a single franchise to a franchisee for one business operation. McDonald’s is the best known example of this.
Conversion franchising is a variation of the first and involves granting a franchise to an operator already involved in a similar business. They often include reduced fees because there’s already an established business in place. Many real estate companies are this type of structure.
Does development franchising involve the sale of development rights to a territory? Franchisees have exclusive rights to operate a pre-established number of individual franchises on a pre-defined opening schedule. Panera Bread and Buffalo Wild Wings are two of the best known examples.
Sub-franchising or master franchising involves granting the right to sell individual franchises within a specific territory, as well as an obligation to provide support and services to those individual franchises.
Representative franchising is a variation of sub-franchising, but the difference is the franchisor and not the master franchisee enters into the franchise agreement with the individual franchisee. Examples include UPS Stores, Massage Envy, and Subway.
Individual franchising is often the best bet, but not right for everyone. Before deciding which structure(s) to use, consider:
- Speed of growth needed to meet your goals
- Support you can provide to franchisees
- Return at the unit level
- Ability to cluster units effectively
- Ability to engage in passive ownership
- Fragmentation of competitive market
- Value position
- Degree of competition of your targeted franchisee
If you’d like to know more about franchise structure and choosing the one that’s right for you, give us a call!