As an investor looking for the best franchises to buy, you have a lot of options. The fees to get started in your own franchise vary wildly by the business and the location. Knowing the types of franchises to invest in is essential to understanding how to make the most of your investment opportunities.
With so much variation, you need to know the types of franchises available for you to invest in and how to make the right decision for yourself and your investment in 2020. Here’s a list of the 5 trending types of franchises and the advantages and disadvantages of each.
Job Franchise
Job franchises encompass the diverse range of domestic and home-centered services and industries that can be run by a few private individuals. This is arguably the easiest franchise to invest in as it requires the least groundwork and infrastructure to keep track of. It will require relatively low capital for you to get started as well.
That doesn’t mean it’s any less profitable, however. Many of the currently trending franchises fall into this category, including travel agencies, plumbing and drain services, cleaning services, home maintenance companies, event planners, and lawn care services.
On the part of you, the franchisee, this is a relatively low-income investment. However, this kind of investment is only for those willing to provide the services they’re investing in since it’s up to you to deliver on whatever the company is selling.
You may opt to delegate these services, but for the most part, this investment is for people who want to invest in their own service with minimal equipment and stock required. Often only a little start-up capital, some equipment, and a vehicle are required to get this type of franchise up and running.
Product Franchise
In this relationship, your investment goes towards acquiring the right to distribute the licensed products of the franchise owner. This is the biggest investment you could make in retail sales, as this type of franchise accounts for most of the profits in it.
Many of the most popular franchises to invest in fall into this category, which focuses mainly on large product suppliers like car companies, gas stations, and machine part producers.
Remember that in the case of investing in a product franchise, the company probably won’t set up a whole system of distribution for you. What you’re paying for with this kind of investment is really the license, which means: the right to distribute products of a famous brand. Those brands are why product (sometimes called distribution) franchises comprise the most retail profits of any franchise type.
Investment Franchise
On the other end of the spectrum, investment franchises require heavy upfront investments on your part. With a large starting capital and a lot of required infrastructure, these are recommended only for experienced investors.
The reason is that you will often need your own established management team to run the business you’re investing in. It’s not something you can do alone. Investment franchises include restaurants and hotels. While these are difficult to manage, they are often trending because the potential for a return on the initial investment is huge.
Research is always important before you make a big investment, but more so in investment franchises than any other. You need to make sure that you and your team are prepared to manage the services provided by this business and keep it running smoothly. If you can, these can be some of the best franchises to buy.
Business Format Franchise
When talking about the best types of franchises to invest in, business format franchises are by far the most enticing. Like product franchises, you invest in a company in order to obtain the right to use their license to sell their products.
Unlike product or distribution franchises, however, in the arrangement made between the investor and company in a business format franchise, the company provides an entire working business system for the investor to manage.
This includes the business procedures, operating manuals, and marketing strategies that make each branch of a particular franchise operate the same under different franchisees. This type of investment is becoming the most prevalent and encompasses many of the most popular franchises.
For instance, let’s say you invest to become the franchisee for Zac’s Burgers, a fast-casual hamburger restaurant. For your investment, you won’t just have access to the restaurant but to the company’s entire production and distribution procedures. This includes its employee training protocols, operating systems, and marketing strategies.
Their brand will essentially become your brand. The infrastructure established to run that company will be your responsibility.
People expect a hamburger at one member of a chain to be the same as at another. This is accomplished through the meticulous company-specific procedures bought by the franchisee during a business format franchise agreement. The benefits offered to the franchisee are equaled by the responsibilities.
Conversion Franchise
The last type of trending investment is a conversion franchise, which requires someone established in the business. Conversion franchises are when businesses are recruited into a franchise by purchasing a brand.
If you become an investor in a conversion franchise, you’re probably part of an industry network already, such as a real estate or travel agency. These franchises are typically multi-tiered affairs, requiring a lot of experience and coordination.
The Takeaway
There are several types of franchises that can be invested in. In order to make your investment count, as a potential franchisee, it’s up to you to determine what your specific skills are, how you fit into the network of your potential business, and which of your opportunities is the best match.
Deciding between these potential types of franchises means deciding how your distribution network will be set up (or whether it will be at all) and how much of the company you will be responsible for. From the most prevalent fast food franchises to a self-run house cleaning service, investing in a franchise is a huge undertaking.
Knowing what’s trending in 2020 will help you make an informed decision and get the most out of your hard-earned investment.
Zac's Burgers is presently not selling franchises and does not have a certified franchise disclosure document. Zac's is offering licensing opportunities, however, potential licensees must meet all federal and state requirements.
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