A breakdown of the different franchise models and what they mean for franchisees
By Alyssa Thulmann
The franchise industry is unique in how expansive it is, covering nearly every sector and kind of business you can dream of. Once you’ve decided that franchising is the right path to business ownership for you, you have many different models to choose from depending on your interests, lifestyle, and goals.
While finding a brand you resonate with and believe in can be an important aspect of choosing a franchisor, there’s more to consider: the kind of role you want in the system, where you’d like to operate from, and what building blocks you’d like to start with, to name a few. Below you’ll find an introduction to the various models that prospective franchisees have to choose between depending on what kind of experience they desire.
The different franchise agreements
The title of “franchisee” is not one-size-fits-all; there are different kinds of franchise agreements one can sign depending on the role they’d like to play within their chosen system and the number of franchises they’d like to oversee. Options include single-unit and multi-unit ownership, area development, and master franchising.
One of the most well-known kinds of franchise agreement is the single-unit agreement, in which a franchisee invests in one unit that they’ll then open and operate as an owner. In this case there’s no expectation that they’ll open additional locations in the future, although it’s possible they may choose to do so later on. Multi-unit franchising occurs when an individual signs multiple single-unit franchise agreements, with each location acting as its own unit. These locations may or may not be in the same geographical region.
It’s not uncommon for a franchisee to begin with single-unit ownership before opening more locations down the line once they’ve got their groove. One of franchising’s benefits is that you’re able to grow at your own pace. If you prefer being hands-on and on-site everyday, or if you just don’t have the breadth of experience to expand to more locations, then single-unit ownership may be ideal. And if opening multiple units is what you’d like to do, you can work with your franchisor to ensure you’re growing at a comfortable rate depending on your investment level, the leadership role you’d like to take for each location, and the opportunities available.
Another avenue to consider is an area development agreement (ADA). Under an ADA, the franchisee signs on to open a specific number of franchises in a designated region within a certain time period, receiving exclusive rights to their territory. They’ll have the ability to operate each new unit themselves or they can find independent franchisees to operate a unit instead, though they can’t sub-franchise. This kind of agreement allows a franchisee to establish their presence in the region, and although the investment level is higher, it can increase the profit potential.
For those who like the idea of expanding throughout a specific region, master franchising offers a different kind of opportunity. A master franchisee operates similarly to a franchisor, growing their territory by opening and granting franchise units to other franchisees. In this case, they can sub-franchise, which involves the franchisee signing an agreement directly with the master franchisee instead of the franchisor themselves. Master franchisees are responsible for opening at least one location on their own and provide training and support to “their franchisees” as well.
Home base
The kind of business a franchisee chooses can have a huge impact on their day-to-day tasks and lifestyle. While one is not inherently better or worse than the other, they do offer different experiences, particularly with where the franchisee works from.
Likely the most obvious is the traditional or brick-and-mortar business. A traditional franchise operates out of a specified, physical storefront or location where customers visit to buy products or services. These can be a standalone store, a kiosk or express location in a mall or airport, or a store-in-store location located inside another business, but either way, it runs out of a designated, static space.
A non-traditional franchise, on the other hand, has more freedom with where it functions. Also called a mobile or home-based business, these systems can operate out of a vehicle or a home office and focus more on communicating virtually, coordinating with customers to meet them where they are, or travelling between various secondary spaces.
Franchisees can reconcile their own wants and needs with the daily operations of a traditional versus a non-traditional franchise to see what fits best into their lifestyle.
Blueprints and ingredients
When it comes to the nuts and bolts of digging in and actually opening your business, different models provide unique paths to follow. Opening a full turnkey operation is different than handling a build-out, and each one has pros and cons depending on the individual owner.
Most franchises are, to some degree, turnkey. While each system is unique, franchising in general is appealing because it offers a proven, developed system, often alongside initial training and support, operations manuals, brand recognition, checklists, and more. What prospective franchisees have to consider, though, is the degree to which a brand is turnkey.
A full turnkey franchise operates under the idea that all the franchisee needs to do is “turn the key”: unlock the doors and start operating. The franchise agreement and the initial fees paid will cover everything they need from securing a location (if required); renovating and sourcing equipment; training the owner on operations, marketing, sales, and anything else they need to know; setting up systems and programming; and anything else the business must do to run. A turnkey operation takes a lot off the shoulders of the franchisee, but also gives them less control, and can reflect a higher price point than the alternative.
Franchisors can also offer non-turnkey opportunities wherein the franchisee sees added responsibility for the build-out. In these cases, opening preparation requires more hands-on work and additional investment from the franchisee themselves. Whereas a turnkey package will include all the physical materials and work needed to open the business, build-outs require the franchisee to invest in their location along the way, overseeing the design and construction process themselves rather than having those aspects already included. This doesn’t mean, however, that the franchisee won’t get insight and support from their franchisor, especially since each brand has preferred suppliers, designs, and requirements to be met by each franchise.
New to you, new to all
Franchisors may also offer their franchisees two options between opening a brand new location from scratch or taking over an already existing unit—a new build versus a resale.
The definition of a new build is found in the name; the franchise is built fresh from the ground up, a brand new location that didn’t exist before. In this case the franchisee will see the franchise physically constructed and designed, handle all staffing and onboarding, and market to a new area.
The other option is buying an existing franchise location, taking over the ownership and operation. Resales can occur between one franchisee and another, a franchisor and a franchisee (in cases of converting corporate stores to franchise locations), and from a franchisee back to a franchisor. In this case the history and the infrastructure is already there, but it’s the new owner’s job to see the franchise through the leadership transition and into the future.
The Canadian franchise industry boasts endless brands to explore across more than 60 sectors, and each of them offer various models and opportunities for consideration. At the end of the day, it’s not about which one is better, but about which one is better for you.