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What is a Franchise Model and Which One Does SD Use?

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Basics of the Franchise Model; Breaking Down the Definition

Once called the greatest business model ever developed, the franchise model has been around since the medieval ages. Middle age governments granted high church officials a license to maintain order and assess taxes—the feudal equivalent of a franchise. These franchisees held the right to hold and organize markets and other business-related activities. They even paid a royalty to the lords in exchange for a monopolized commercial venture. This primitive version of the franchise model has been upgraded over the years. Now resembling household names like Starbucks, The UPS Store, and Splash and Dash Groomerie & Boutique.

The definition of a franchise model is when a party develops a product or service (franchisor) and grants another party (franchisee) the rights to carry out this product or service, with a trademark or brand, according to an identified system, within a territory or unit location, for agreed upon terms. A franchise has a proven track record of success and a relatively easy pathway to become a franchise business owner.

Franchise business will have a 3.1 percent growth in job output, according to the Franchise Business Outlook: 2016. By the end of 2017, 9.1 million individuals will be employed by a franchise owner. The franchise sector will also account for $994 billion dollars in revenue growth. With 795,932 establishments operating under a franchise model in the U.S., it can be overwhelming for prospective investors. Franchise sectors fall across over 300 business formats with the most popular franchise being the automotive, business services, and the pet industry.

Franchise Model Vs. Other Businesses  

A franchise business provides a detailed framework of how potential owners operate. Almost like a business ‘blueprint.’ The franchisee signs a franchise disclosure document which outlines very specific rules that must be followed. A franchise fee and ongoing royalty fee is paid. In return, franchise units receive marketing materials, established brand, training & support, and proprietary software and technology.

  • A non-franchise business opportunity is similar. In this case, a business ‘blueprint’ is provided but is not as technical and detailed as a franchise agreement. A smaller contract is signed that outlines certain provisions like inventory and sales methods. There is also less regulation with this model. A mall-kiosk is a good example of this business format. Varying business opportunities have different ways of handling fees but many require investors to pay an initial fee, without any ongoing royalty fees.  
  • Independent business is a business schematic which is completely built by an entrepreneur. The concept, business model, operational systems, inventory, services, and every other tedium involved in owning a small business is developed by a single party. Solo businesses are not responsible for any fees aside from their own operational costs.
  • The term franchise model helps provides context but not every franchise fits into a universal description. Every franchise has a different franchise agreement and diverging methods of business, making them difficult to categorize. The best way to understand franchising is to examine how franchisors allow their franchisees to use their trademarks and brand to distribute products and services.

Types of Franchise Models

Business Format Franchises

This franchise model is the most typical format, accounting for 80% of the franchise sector. With this model, a franchisor sells the rights to the brand & trademark and business systems & processes to the franchisee. The franchisee develops this package to provide services and products to customers. Franchises are typically proven in the marketplace as a business prior to franchisors selling the franchise rights.

Single-Unit Franchise Model

A single-unit franchise model system is when one person buys a brick-and-mortar location from a central company. The franchise owner operates the store on the terms of the company’s rules. Owning one store at a time is a good decision for first-time small business owners. Once a store has been proven successful, then an owner can expand and open another location.

Area Developer

An area developer franchise model allows entrepreneurs to develop a package of locations in a domestic area. Panera Bread uses this model. The franchisee agrees to open an agreed number of businesses within a specific amount of time. The area developer is regulated by stipulations of the parent company. A typical contract mandates a franchisee to develop an area within five years.

Master Franchise

When a franchise model expands abroad, spreading into international territories, a master franchise model is used to proliferate the business. This method allows a system to discover franchisees interested in opening overseas locations. The master franchisor handles training and support of newly established areas. Master franchisers often establish a training center and headquarters to expedite the expansion process.

Product Franchises

A product franchise model revolves around manufacturers controlling the retail stores that distribute their products. This form of contract—licensing—allows stores owners to use a trade name or trademark. Store owners pay a fee to the manufacturer for the rights to use the trademark for signage and advertising. For example, a computer store that sells Apple products has bought a license to sell these products.

Manufacturing Franchise

In this franchise model, a franchisor allows a manufacturer to produce and sell products using its name and trademark. One of the biggest examples is the franchising agreements that Coca-Cola Company makes.

What Model does Splash and Dash Use?

Splash and Dash Groomerie & Boutique has a unique business model. The pet franchise operates as a duo of grooming salon services with retail capabilities. This provides revenue from both services and products. Additionally, the business model takes advantage of the membership program offered. The membership allows franchise owners to collect from a recurring revenue stream. Armed with cutting-edge proprietary software, helpful support & training, and corporate marketing campaigns, owners of Splash and Dash locations are set up for success.

The company’s uniqueness also comes in the form of passion. Passionate entrepreneurs who love animals are drawn to the franchise model. The company seeks out individuals who want to work alongside animals and have a knack for business. The combination makes for a successful franchise model that is expanding quickly!

“I always wanted to own a business in a franchise environment in which the store portrays an upmarket image backed up by solid support from the corporate office guiding me to achieve business success. Splash and Dash provides the creativity and motivation for my business to grow and prosper.”

–Steve D, Franchise Owner

To learn more about the amazing happenings at Splash and Dash Groomerie & Boutique, click here!

 

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Three Growing Areas to Start Successful Franchises

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With all the hype thrown around,  it’s hard to tell what’s legitimate and what’s greasy. When you research different franchises, there’s a lot of pageantry involved with Discovery Days and the boasting of irrelevant figures. Buying a franchise should look more like a partnership, even with the big guys. It is illegal to disclose how much any individual franchise location will make, and past profits will be included in the FDD. This puts future franchise owners in a precarious spot. This is why transparency and research are the road lines in the street of due diligence. So what are the successful franchises and what are the sinking ships?

Looking at the industry as a whole helps future owners get a comprehensive peak at their possible ROI. The three industries that dominate the franchise market are also the fastest growing: Quick-Service Restaurants, Pet Services, and Maintenance.

Let’s examine each to see the pros and cons of investment.

Quick-Service Restaurants

Since 1955, when the golden arches first opened their doors to franchising and burger gourmands alike, the fast food titans have reigned the market. This has forced newcomers to innovate. The new models are designed with a more upscale ambiance. A popular model is the quick customizable menu choices that were first popularized by Chipotle. One step further, are the all-natural healthier alternative chains who are gaining huge traction, like Panera Bread.

Although in the past two years, McDonald’s did close around 750 locations. In the same time period—the chain opened 1,000 additions to their international location count. These openings offset the failing locations. The net 300 additions are keeping the franchise afloat. If anything, this is indicative of a shifting market and how franchisee ambition can make or break the success of a restaurant.

One thing is for sure, whether you plan on opening a Subway or a Taco Bell you’re well within an industry that will not budge.

The Pet Franchise Industry

Many have found a way to translate their love for animals into owning successful franchises in the currently exploding pet industry. Pet ownership is on the rise with 84.6 million homes in the U.S. reporting to own pets. In response to the demand for pet food, care, medical services, and dog leashes franchising in all-things-pets has become a lucrative and joyful experience for franchise owners.

The industry has been steadily rising since the early 90’s.  Spending really took off during the recession and 2015 when spending increased by almost 11%, or $6.47 billion.

This new demand opened the floodgates for workers ditching corporate America and finding better opportunities owning anything from a pet grooming franchise to a dog training center. Mobile grooming is also taking off. Many pet owners prefer the convenience of getting their dog’s grooming done from their house. The dual pet grooming shops that also sell retail items have seen enormous growth too. These franchises model the mom-and-pop pet store but have profitable business concepts like recurring revenue to continually push the business forward. The advantages of these concepts are proliferating into successful franchises.

As pets become more of a staple of American life, and the norm becomes thinking of them as children who should be spoiled as such, it is evident this industry will continue to swell.

Maintenance Franchises

Low start-up costs, the inevitability of everything getting dirty, and eventually breaking is the recipe for dozens of successful franchises in the maintenance industry.

Maid services, lawn care, electrical, and appliance repair are just a few niches within the second largest segment in the franchise domain. Maintenance franchises make up 12.6% of the market. This growth welcomes handymen everywhere to put their practical skills to money-making uses with proven business models.

The best franchises to research are ones with environmentally friendly messages and solutions. As more awareness of carbon footprints and sustainability increases, many customers will opt for eco-friendly products and services. Consumers are typically willing to pay higher costs for cleaner solutions.

Franchises like NaturaLawn of America, Mosquito Squad, and You’ve got Maids are all great places to start the search. However, be wary of franchises that have come into some controversial heat in the last few years. A few companies have been sued for fraud and other unethical business practices and publicity of this nature is not the brand you want to represent. All litigation will be disclosed in an FDD.

The Secret to Successful Franchises Everyone Knows About

Yes—research, instincts, and finding the perfect match are all crucial when shopping around for small businesses. But the real reason franchise owners earn their ROI a year after opening—then go on to expand and earn considerable wealth—is they were able to take a critical look at themselves.

Owning a small business takes dedication. You are in a constant flux of creativity. When market trends shift out of your favor, how do develop a marketing campaign to bring customers back? When construction begins on the street in front of your shop, how do you endure the shortage of foot traffic?

The answer is passion.

Find out what you are passionate about. Then you will not only be able to reach successful heights, but the everyday challenges of owning a business will play an integral factor in your happiness.

Good luck!

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