At its core, a franchise is simply a way of doing business—a method that works for providing a service or delivering goods to a consumer.
The way franchises work generally fall into two categories, facility-based and service-based. Each has its own strengths and drawbacks, and one of the first decisions you’ll have to consider when you start researching investments is which model best suits your needs.
Facility-based businesses are brick-and-mortar ones; the customer usually goes to the business to buy a product or service. Examples would be a massage spa, retail store, tutoring center, gym, or a restaurant. Within this category, large retail concepts are mainly found in large strip mall spaces or standalone buildings. They require substantial space, customized build-outs, and consequently, large investments.
Some facility-based businesses are considered light retail. These businesses fit well in strip mall locations, because they require a small footprint and less build-out. They also require a smaller investment than large retail franchises, since building costs and lease agreements tend to be lower.
--Plenty of opportunity for customer interaction.
--Advertising, signage, and business location combine to help bring customers to you.
--It’s possible to operate many facility-based businesses as a semi-absentee owner.
--This model can come with “franchise in a box” ease if the concept allows for quick build out and fast startup. For example, a martial arts franchise might be installed in a matter of weeks, because it doesn't take much time to put up mirrors, lay down mats, and install a counter.
--The site selection process often involves a long lead time. After making a sizeable investment, a lengthy search process can significantly delay return on investment.
--Facility-based concepts can require a large amount of capital to get started and to run. You will need to build out the facility and, going forward, you will encounter fixed overhead costs like rent, utilities and long-term lease commitments.
--Once you commit to a site, your business becomes tethered there. Retail businesses tend to be about location, location, location, and getting just the right spot can make or break a startup. The success or failure of other businesses in your area has an impact on yours, good or bad. If you are in the right location, you might enjoy great success, but a poor choice could break your business.
--Your business may be open during weekends and holidays, and you will either have to be there or pay someone to be there for you.
Service-based franchise businesses generally involve the service provider going to the customer’s home. Examples include painting, cleaning services, home health aide providers, window covering companies and even floor sales. Some of these are businesses can operate with low overhead. For example, painting and home inspection services are businesses in which the franchisee doesn’t need a facility. Many of these opportunities can be run by the franchisee from anywhere, including from home.
--A service-based concept is almost always cheaper and faster to get off the ground than a facility-based concept. There are much lower financial barriers to entry.
--It’s easy to scale a service-based business, so you can build it over time, adding staff as needed. This is sometimes as easy as adding crews or trucks.
--Your schedule may be more flexible because you are not necessarily bound to the operating hours of a store.
--It will take more work for customers to find you in your service-based business. The reality is that you will need to find them, utilizing community connections, advertising, word of mouth and any other publicity or marketing tools available to you.
-- In some cases, such as a home restoration business, you are the business, which does not allow for an absentee model. In this scenario, you are the artisan or the service provider, and your hands-on presence will be a key factor in your success.
Ready to HIRE YOURSELF? I’ve created a quick quiz to help determine the best franchise structure for you. If you follow this link, you can take it now and start better understanding your options.
[link = QUIZ: Choosing the Best Franchise Structure for You]