What are the 4 types of franchising?

With over 1,100 franchisors and 65,000 franchise units across the country, the Australian franchising sector is booming. In fact, we have the second highest rate of franchising outlets per capita in the world – coming second only to our neighbours in New Zealand.

 

Franchising is a popular business model because it makes starting a business accessible. Simply put, franchising allows a business owner (i.e. the franchisee) to sell products or services under the brand name and systems of a parent business (i.e. the franchisor) for a specified period of time.

One of the biggest misconceptions about franchising is that it’s rigid. In reality, franchising is a highly flexible model that allows for different arrangements and working systems. For anyone looking to start their own franchise business in 2022, it’s extremely important to understand the differences between each type of franchising arrangement and what each one grants you as a franchisee.

So, what are the 4 types of franchising?

The 4 basic types of franchise arrangements are single-unit, multi-unit, area developer, and master franchise. Although there may be some overlap between these categories, there are subtle differences between each of these arrangements that are important to understand.

1.   Single-unit

Single-unit franchises are the most common type of franchise agreements. Under a single-unit franchise agreement, a franchisor grants a franchisee the rights to open and operate one single franchise unit. A Jim’s Mowing business in Northern Sydney, for example, would be considered a single-unit franchise.

 

These types of franchise agreements are popular because they’re a good entrance point for those looking to make a transition into the franchise industry. Whether you’re an experienced business owner or a new business owner, focusing your time and energy on one business at the beginning of your business journey is a great way to learn the ropes and to get to know your industry.

2.   Multi-unit

A multi-unit franchise arrangement is a type of agreement that sees a franchisor grant a franchisee the rights to open and operate more than one unit, usually within a single region. Under these agreements, the franchise owner usually hires managers and other staff to manage and run the individual businesses across the region.

 

Multi-unit franchises naturally require a higher investment level, which translates to a higher level of financial risk. For this reason, multi-unit franchise arrangements normally attract people who are more experienced in business and have already spent a few years in the franchise industry.

3.   Area developer

An area development arrangement grants a franchisee the right to open more than one unit in a geographical region, within a specified timeframe. At first glance, this type of arrangement seems identical to a multi-unit arrangement. Although they’re similar, these two arrangements differ in that area development arrangements grant the franchisee (i.e. the area developer) exclusive rights for the development of that territory. These territories are contractually protected, which means that no other party is allowed to open any units within that particular region during the specified timeframe.

Area development franchise arrangements are significant investments for both the franchisee and the franchisor. For the franchisee, they’re committing to a ‘mini-franchisor’ role and are assuming responsibility for units in an entire territory. For the franchisor, they’re fronting the risk of taking an entire region off the table for a period of time and are putting complete trust into one developer.

4.   Master franchise

A master franchise agreement (or Regional Franchise as we call them here at Jim’s) is similar to an area development arrangement, but it also grants the franchisee the right to sell franchises to other people within a specified territory or region. The franchises that they sell within their territory are referred to as ‘sub-franchises’.

 

As a master franchisee, you become a franchisor within your region. You’ll still be able to draw on support from your main franchisor, but you’ll also be taking on additional responsibility for the sub-franchises in your region. Since master franchisees assume a greater amount of responsibility, they receive a portion of the franchise fee and/or ongoing royalties from sub-franchise owners in the territory.

Looking for a business opportunity in 2022?

Franchises are a cornerstone of the Australian economy. As franchise uptake continues to rise across the country, owning your own franchise can be a lucrative business opportunity.

If you want to learn more about life as a Jim’s Group franchise owner, get in touch with our team today. Call 131 546 or enquire online to see how we can help you kickstart your business journey today.