Which Franchise Model Is Right for You? Here’s How to Choose

Opinions expressed by Entrepreneur contributors are their very own.

A significant choice potential enterprise homeowners should make when contemplating a franchise is figuring out what kind of enterprise they need to run. There are millions of manufacturers and ideas, however franchises usually fall beneath two enterprise fashions: “brick-and-mortar” and “service-based.”

Take into consideration a franchise . Any franchise. Probably one that gives companies that you simply use constantly. Is it a hair salon? A health studio? A garden care firm? Possibly a shifting service?

All of those are franchises, however when it comes to a enterprise mannequin, the hair salon and health studio fall beneath one umbrella — location-based companies with retail storefronts the place the shopper receives the service at a fixed-base location. In the meantime, the garden care firm and shifting service fall beneath one other umbrella — service-based manufacturers — which wouldn’t have a storefront or customer-facing actual property and the service is offered on the buyer’s location.

Listed below are a number of the key variations between brick-and-mortar and service-based companies, in addition to the standards to construct one, so you might be extra knowledgeable when selecting a franchise mannequin.

Associated: 7 Important Inquiries to Ask Your self Earlier than Beginning a Franchise

1. Funding value

Actual property is what often drives franchising funding prices. The extra actual property intensive, the larger the funding stage. Location-based, brick-and-mortar franchises usually have greater preliminary investments. Constructing the retail house will be expensive. Image a health studio — you want gear, like bikes or pilates machines, but additionally a high-tech sound system, televisions, altering rooms, showers, and so forth. To not point out the flooring, inside structure (partitions, stage, numerous rooms), commerce gown and extra.

Alternatively, a service-based model does not essentially require actual property (some could even function from a house workplace). Some service-based manufacturers require cupboard space to deal with autos or gear which are deployed on the buyer’s location. Much less seen and decrease value industrial areas are perfect for these franchises. Sometimes, these areas require few leasehold enhancements in comparison with a customer-facing retail house.

So what are you able to anticipate the funding prices to be for every of those choices for a single unit or territory?

Whereas it is not definitive (there are all the time exceptions), frequent ranges are:

  • Brick-and-mortar: $250,000+
  • Service-based manufacturers: beneath $300,000

2. Ramp-up time

Ramp-up time goes hand-in-hand with funding prices. The time it takes to ramp as much as a month-to-month optimistic money movement and set up repeat enterprise each point out necessary benchmarks for any sustainable enterprise. When it comes to velocity, service-based manufacturers usually tend to ramp up rapidly due to a decrease funding value upfront and decrease mounted overhead prices. Let’s take into account a shifting service model. After you have the gear and staff in place, the month-over-month operation prices are extra intently linked to income progress; thus, these fashions can usually develop to money movement extra rapidly.

Alternatively, a brick-and-mortar model (like a salon) can have excessive upfront funding prices (retail house, particular person stations, chairs, mirrors, hair wash/dry stations, and so forth.) and can possible take time to ascertain a powerful buyer base in a specific neighborhood. However they have an inclination to have extra repeat enterprise and sturdy revenue streams over time.

Associated: The Rise of Click on and Mortar — Why On-line Companies Ought to Take into account Opening a Bodily Retailer

3. Scalability

Brick-and-mortar companies are usually extra scalable. After you have a single profitable franchise, it is simpler to handle and construct an empire by spreading prices over a number of places. However bear in mind, as a result of pricey preliminary investments, constructing prices might be comparable every time you open a brand new location.

With a service-based model, slightly than constructing extra bodily places to develop, you’ll be able to develop your territory and drive extra penetration inside your territories. Whereas this is not with out extra prices (take into account gasoline cash, staff to maintain up with demand, extra frequent gear upkeep, and so forth.), it requires incremental investments since your income justifies it and creates economies of scale. By buying extra territories in a service-based model, you scale your income and revenue multiplier with out the identical proportional enhance in capital funding.

4. Expertise

One space that’s comparatively equal when it comes to usefulness and accessibility is know-how. In recent times, know-how has reworked the franchise world. Particularly, repeatable however vital duties have been streamlined and simplified by know-how. For brick-and-mortar manufacturers, it’s normal to see prospects scheduling companies instantly (hair appointments, health class bookings, and so forth.). For service-based manufacturers, prospects can e book service calls, and staff can carry out duties in actual time to maintain enterprise shifting, similar to ordering components, creating estimates, and so forth.

5. Location threat

Location is vital for brick-and-mortar franchise manufacturers. It is usually a balancing act of discovering actual property that’s inside a suitable value vary and in a well-liked location that creates constant repeat enterprise. You’ll be providing companies in a set location, so the additional away you might be from the shopper, the much less possible the shopper will journey to your location. For instance, a health studio must be handy for purchasers to return to your location three to 4 occasions per week. The extra often a buyer would ideally like to go to your franchise, the upper density is required for a similar market radius.

For a service-based model, location isn’t as necessary for general success. Because you or your staff might be touring to the shopper’s location, there isn’t any web site choice threat and you might be free to penetrate deeper and deeper right into a market. Nevertheless, it’s price noting that, in the event you do develop to a number of territories, chances are you’ll need to take into account renting extra warehouse or cupboard space to optimize effectivity.

Associated: Begin Your Personal Enterprise or Purchase a Franchise: Which Is Proper For You?

6. Recession resistance

Lastly, one issue to contemplate lies within the recession resistance of your franchise. Brick-and-mortar manufacturers usually provide extra discretionary companies. These are on a regular basis companies to make sure — hair care, nail salon, and so forth. — however they don’t seem to be all the time thought-about on a regular basis important companies. Alternatively, service-based manufacturers usually are important on a regular basis companies that should be carried out regardless of fluctuating market traits — assume HVAC, plumbing, yard care or restoration.

On the finish of the day, there isn’t any one-size-fits-all franchise for each potential franchisee. However by understanding the fundamentals of those umbrella classes, you can begin to contemplate which enterprise mannequin kind matches most intently with your online business targets.

Share on facebook
Share on twitter
Share on linkedin

Related Posts

Table of Contents

Find our article helpful?

Join our newsletter!

Scroll to Top