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Understand Different Models Of Franchising

There were days when students after completing their studies use to look for a permanent job and stick to it for their entire life until the time of retirement. But gone are those days, nowadays, everyone has their own business plans and strategies. This is the age of entrepreneurs. But just the excitement and wish to do something is not enough, you need to have sufficient knowledge too. Today, I am going to emphasize on the franchising part.

What is Franchising?

A franchise is a deal between two parties (franchisor and franchisee) that allows one of the part to carry the trademark or name related to other party for a specific time or location. The franchisee is given a franchising license to use the franchisor’s trademarks, signage, software, system, or any other proprietary tools according to the contract.

While under the contract, you have to follow all the rules and run business according to the contract and the operations manual. However, once you have made a decision to either acquire rights to develop the franchised business or franchise your own business, you need to know about the different franchising options available in the market.

Types of Franchising

Here I have listed the basic four types of franchising that you should know for giving franchise a deep thought.

  • Single Unit or Direct Franchising

This is the simplest and purest form of franchising. A single unit franchise, as the name suggests, gives right of operating only one franchise unit to the franchisee. This agreement is done between franchiser and franchisee normally when the business is new, and can also be called as an introduction into the franchising world. Under this model, the franchisee has right only to open one business at a location or within a specific geographic area. Many a times, after the success of single unit franchising, the franchisee may negotiate with the Franchisor for opening some more units over time.

  • Multi-Unit Franchising

A multi-unit franchising is an extended version of the direct franchise. In this agreement, the franchisor grants the franchisee the rights to operate and open more than a single unit. But normally, there is a detailed schedule drawn in the contract regarding the expected time and conditions when the franchisee can open other units.

  • Area Development Franchising

This model of franchise is simply a mix of direct and multi-unit franchising. In this contract, as an area developer, the franchisee can open more than a single unit of business during a specified time, but only in a specified area. The term ‘area development’ itself gives away the idea that in this franchise, you cannot deal with anything apart from the area allocated.

The difference between a multi-unit and area development franchising is that the franchisee gets exclusive rights of development of that specific territory. This means that no other franchisee can open business in that particular area for the time specified in the contract. The entire area will be under one single franchisee.

  • Master Franchising

As the name suggests, it is master of all the franchising types. It has more rights than any of the other franchise kinds. One can consider it as an extended version of area development. In master franchising, along with the right to open as many as businesses in the specified area, you also have the right to sell franchises to other franchisees within the specific area. These people are known as sub-franchisees. This means that you are a franchisee, but you also get to act as a franchiser of the given area and be benefited from the royalties and fees from your sub-franchisees.