Get to Know the Main Types of Franchising

Exchange of business card

Exchange of business cardStarting a new business takes a lot of planning and tons of hard work. But at the end of the day, it is still a gamble on whether or not it will become successful based on the reception from the market.

On the other hand, you might want to consider becoming a franchisee of a stable and more established business. One important thing to understand though is there are two types of franchising: product distribution franchises and business format franchises.

Before deciding which franchise to sign, get to know the differences between the two agreements.

Business Format

Under the agreement for the business format franchise, a legally binding contract is signed between the owner of the business (franchisor) and the one who sought to partake in the business (franchisee).

This agreement discusses the rights, responsibilities and obligations of all parties involved, and specify the compensation they will both receive pertaining to sales among others.

Once all things are in place, a franchisee is not only allowed to offer the same products or services of the franchisor, but they are also accorded the same training, software and system, store design and aesthetics, and gain the same benefits from the advertising and marketing spearheaded by the franchisor.

In short, franchisee serves as an extension of the main franchise as they can sell the same trademarked goods or services and enjoy the same perks.

Product Distribution

The same is true for product distribution – you will be able to sell the products of the franchisor (these are mostly product-based businesses and not services). However, the agreement between you (distributor) and the company is that you will be able to carry the same product though you retain the name of your business.

Your association with the company that produces the product is solely on the selling end, which could somehow be seen as closely resembling a supplier-dealer relationship. In simple terms, as a distributor, you serve as a reseller of the products but must operate under your own business name.

More often, business owners with this type of agreement carry other products from non-competing companies.

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