Summary
- The five main franchising formats in the UK are business format, product distribution, manufacturing, job and management franchises, each suited to different types of businesses.
- Business format franchises are the most common and give franchisees the full package: brand, systems, training and support.
- Product distribution and manufacturing franchises focus on selling or producing the franchisor’s products, often with less brand integration than business format models.
- This guide explains the different franchising formats for franchisors and franchisees considering a franchise opportunity in the UK.
- LegalVision’s business lawyers specialise in advising clients on franchising formats, franchise agreements and franchise structures.
Tips for Businesses
Match the format to your business model before drafting a franchise agreement. If your brand relies on consistent customer experience, a business format is likely the right fit. If you supply a proprietary product, a distribution or manufacturing format may suit you better. Get legal advice before committing to a structure.
Franchising formats define how a franchisor and franchisee structure their relationship and share brand, products and operations. The five main formats are business format, product distribution, manufacturing, job and management franchises. Each suits different business types and gives franchisees different levels of brand involvement, operational responsibility and independence. Choosing the wrong format can affect your franchise agreement, your franchisee obligations and how your brand grows. This article will explore the different kinds of franchising formats.
Business Format Franchise
The business format franchise is the most common franchise format. It involves a franchisor giving the franchisees a ‘business in a package.’ The franchisee will operate under the franchised brand’s name and trademarks, using the franchisor’s procedures and operating systems. The franchisor will train and support franchisees to run their franchised business.
An example of a business format franchise is a coffee shop business. The franchisor will give the franchisee detailed information on making drinks, providing customer services and recruiting employees. The fit-out of the coffee shop will be the same as others within the franchise network, and each franchisee will ensure the products and services they supply meet the expected standard.
Product Distribution Franchise
In product distribution franchises, franchisors allow franchisees to distribute products to consumers. This type is distinct from a business format. Distribution franchisees do not typically operate under the franchisor’s branding. Rather, they will sell the franchisor’s products using their own names and systems.
An example of a product distribution franchisee is a used car dealership. The franchisor car brand will supply the cars to the franchisee to sell, but the franchisee will operate under a separate brand identity.
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Manufacturing Franchise
Manufacturing franchises are a specific type of distribution franchise. Franchisors permit manufacturing franchisees to produce goods using the franchisor’s trademarks and sell them to customers.
An example of a manufacturing franchise is Coca-Cola, which allows manufacturers to produce Coca-Cola products using the brand’s trademarks and then sell them.
Job Franchise
The job format involves a franchise opportunity that allows one person to run a business. This type of franchising follows the business format model. Job format franchisees tend not to have employees as the franchise opportunity enables franchisees to operate a one-person business.
An example of a job franchise is a mobile automobile parts business. A franchisee might operate their mobile business alone, driving around in their designated area and responding to customers.
Management Franchise
A management franchise is a subtype of a business format franchise. The franchisor will train and support franchisees to run their individual business in a way that replicates the franchisor’s proven business model. Like the job format, this format alters the way the franchisee approaches their business. Franchisees will adopt a more managerial approach towards their unit.
Management franchisees are likely to be less focused on daily operations. Their roles will involve leading the business through tasks such as strategic planning. This format can allow franchisees to adopt a more passive approach.
Considerations When Choosing a Franchise Format
1. What Does Your Brand Need?
Deciding between franchise formats is a case of determining which is most suitable for your business. For example, a manufacturing format is unlikely appropriate for a commercial cleaning business because it is service-based. There would be no products for franchisees to manufacture. Perhaps a business format franchise would be most relevant here, and the franchise opportunity might fall into the job format subtype.
2. What Role Do You Want Franchisees to Adopt?
A key distinction between the franchise formats is the role the franchisee will adopt. Consider what role would be most appropriate for franchisees. For example, would a more passive managerial role be appropriate? Do you want franchisees to operate under your brand’s identity? Thinking about these aspects can help you to narrow down your choice.
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Key Takeaways
Within franchising, there are various franchising formats that will suit different kinds of businesses. The following table summarises each type.
| Format | Explanation |
| Business format franchise | A franchisor allows a franchisee to operate a business replicating their business model and using their trademarks and operating systems. |
| Product distribution franchise | The franchisor will license the franchisee to sell their products, but the franchisee will operate under their own branding and business model. |
| Manufacturing franchise | The franchisor will permit the franchisee to manufacture products and use the franchisor’s branding. The franchisee will then distribute the goods or sell them to consumers. |
| Job franchise | This format follows the business format model. It is unlikely that job format franchisees will have employees. They tend to work independently. |
| Management franchise | This format also follows the business format model but means the franchisee will take a more managerial role. They will not be involved in the daily operations of their units; this will be the responsibility of their employees. |
If you need help deciding which of the franchising formats is right for your business, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What should a franchise agreement include?
A franchise agreement should cover the franchise relationship, fee structure, territorial rights, franchisor and franchisee obligations, intellectual property use, dispute resolution and termination conditions. The specific terms vary depending on the type of franchise and the industry it operates in.
What rights do franchisees typically have under a franchise agreement?
Franchisees generally have the right to use the franchisor’s trade marks, receive initial training and ongoing support, and operate within a defined territory. The specific rights vary across agreements, so franchisees should read the agreement carefully before signing.
What should I consider before signing a franchise agreement?
You should assess market conditions in your proposed location, review the franchise disclosure document as part of your due diligence, and check the agreement’s terms on fees, territory, non-compete clauses and termination rights. Take legal advice before signing.
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