How the Franchising Business Model Works
About three in five Americans have an idea for starting a business, but most of them, or 92%, do not follow through, according to Zapier. There are many reasons behind that: funding, fear of failure, stability, and stress. But this is where franchising can benefit entrepreneurs. A franchise can give entrepreneurs an attainable way to get into business ownership with the tools for success.
Get a full understanding of the franchising business model, how it works, and its benefits and drawbacks.
How Does the Franchising Business Model Work?
In the franchising business model, a franchisor owns the rights and trademarks of the company and grants licenses to franchisees to operate under the brand’s name in a specified territory. As the Federal Trade Commission explains, the franchisee pays the franchisor an initial fee and ongoing royalties for the rights to use the brand, access to the franchisor’s business systems, and continued support. All responsibilities and expectations for both parties involved, the franchisor and franchisee, are laid out in the franchise agreement.
The Franchisor’s Benefits
Businesses often struggle to expand independently without being hands-on at a location, so the franchising business model helps them grow quickly. Franchise expansion has a reduced financial risk because franchisees fund their own locations. It also speeds up growth and increases brand recognition because they do not need the capital to open the unit.
Franchisors collect ongoing royalties from owners, typically a percentage of the location’s revenue. Lastly, franchisors can focus on improving the brand and overall system while franchisees handle day-to-day operations.
The Franchisee’s Benefits
One of the most significant benefits of investing in a franchise is access to the brand’s proven business model. The other main difference from independent startups is brand recognition; people are more likely to use a service from a brand with an established presence.
Other benefits include support and training. Franchisees receive initial and ongoing training, marketing support, and operational guidance. The combination of brand recognition and support reduces the risks associated with starting a new business. One of the cons of investing in a franchise is the significant initial investment costs and ongoing fees. But, because of the reduced risk of a franchise, lenders are more likely to fund franchisees over startups because of that proven business model, according to Guidant Financial.
Another con is that franchisees have limited control as they must stick to the franchisor’s operational guidelines and systems. However, potential franchisees should remember that those systems are behind other franchisees’ success.
The 4 Different Franchise Models
1. Single-unit franchise: This is a common model in which the franchisee operates one franchise unit. It is a great way for individuals to own and manage their own businesses directly.
2. Multi-unit franchise: In this model, the franchisee commits to opening a certain number of units within a specific area over a set period. This model suits those with more capital and a desire to build a larger business operation. According to Forbes, nearly 55% of franchisees own more than one unit. Multi-unit ownership allows franchisees to capitalize on one management team that can oversee multiple locations, and it can offer more stability because franchisees are not relying solely on the success of one location.
3. Master franchise: Entrepreneurs purchase the rights to a larger area or region and then sub-franchise individual units within that territory. Master franchisees are essentially mini franchisors for that territory. They must recruit franchisees, provide support, and make sure operations adhere to brand standards.
4. Area developer: Like master franchisees, area developers have the rights to a specific territory but are typically more focused on developing multiple units themselves rather than sub-franchising.
Each of these models offers unique opportunities and challenges, and the choice depends on the investor’s financial capacity, business experience, and personal goals, as well as the brand’s availability.
Seize the Franchise Opportunity With AtWork
The staffing industry, including AtWork, is thriving as businesses look for increased flexibility within their workforce. Staffing agencies allow companies to scale their workforce up and down as needed. Staffing Industry Analysts predicted that the U.S. staffing revenue was worth $201.7 billion in 2023.
With a strong reputation in the staffing and franchise world, AtWork offers an exceptional franchise opportunity. AtWork provides owners with more than 40 years of experience, a proven business model, and comprehensive support and training. Franchisees and their staff benefit from AtWork’s pre-opening training that focuses on roles, risk management, sales, business systems, and recruiting. Beyond training, franchisees continue to receive operational guidance, including payroll funding and processing, marketing, IT support, and even consulting on when it is time to grow.
With available franchise markets nationwide, there is ample room for entrepreneurs to grow with the brand. So, whether you are looking for single-unit or multi-unit franchise ownership, you can find the right fit with AtWork.
Get started today.