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If you’re new to franchising, the abundance of information can seem overwhelming. How do you know where to start? You may have a generalized understanding of franchising, but part of performing due diligence means moving beyond the general and getting into the nitty gritty.
When it comes to understanding different franchise models, there are several categories to be aware of. First, you’ll want to understand the differences between “brick-and-mortar” and “service-based” franchises.
Location-based (Brick-and-Mortar) businesses
Brick-and-mortar franchises require significant upfront investment, particularly for real estate. Establishing a physical storefront or office space can involve high costs, and finding the right location is critical to success. Consequently, these businesses often experience a longer ramp-up period before reaching profitability.
Despite the high initial costs and extended setup time, brick-and-mortar businesses are known for their scalability. Once a successful model is established at a single location, expansion becomes more feasible, with additional locations benefiting from the existing brand presence and operational experience. Many of these businesses also integrate advanced technology solutions to enhance customer engagement and streamline daily operations.
However, the reliance on a specific location introduces risks. Factors such as local competition, foot traffic, and economic conditions can greatly influence the success of the franchise. Additionally, compared to service-based models, brick-and-mortar franchises are generally less recession-resistant, as discretionary spending tends to decrease during economic downturns.
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Service-based businesses
Service-based franchises offer several advantages, making them an attractive option for prospective franchisees. They typically require a lower initial investment compared to brick-and-mortar businesses, have a quicker ramp-up time, and are highly scalable through territory expansion. With integrated technology capabilities, these franchises can streamline operations and improve customer experience. Additionally, because services are performed at the customer’s location, they carry negligible location risk, and many offer higher recession resistance by providing essential services.
Within the broad category of service-based franchises, two primary models emerge: project-based and subscription-model franchises. To illustrate, consider a roofing company as an example of a project-based franchise. This model involves providing one-time, high-value services, with revenue tied to individual projects. On the other hand, a lawn fertilization company represents a subscription-model franchise, where customers pay for recurring services, ensuring a steady revenue stream. While both types fall under the service-based umbrella, their operational models, customer relationships, and revenue structures vary significantly. This distinction allows franchisees to choose a model that best aligns with their goals, financial capacity, and market conditions.
Project-based model
Consider a customer in need of a new roof for their home – this is a high-ticket expense. Barring unpredictable weather like high winds or hail, they likely won’t be buying a new roof more than once every decade or more. Therefore, your customer base is not dependent on recurring customers. While this may not sound like a good thing, there are benefits to this model.
Often, these types of businesses can hire contractors based on the needs of a particular project. Rather than having a large employee team on hand waiting for customers to buy your product, a project-based franchise will wait until an order has been placed before hiring contractors to perform the service. You may only need yourself and an in-office worker to manage projects. This presents a variable cost model that means that the franchisee can maintain relatively lower overhead costs.
That said, take note of your strengths. The project-based model requires a more sales-oriented approach. Since these are high-ticket transactions, the salesperson (likely you as the owner, unless you are hiring a general manager) will need to interact with the customer before the service is performed to build trust and credibility. Furthermore, consider what kinds of projects you are interested in taking on. Is your focus residential home roofing? Commercial? The larger the projects, the more sales-savvy you’ll need to be. While this can lead to a much larger and more profitable business, an understanding of B2B is highly useful.
Also worth noting: while you likely won’t have many recurring customers, there are opportunities to obtain new customers through referrals from complementary service providers. This will require more upfront time and marketing effort, but it can pay off in spades if you proactively build this into your process.
Other “project-based” franchise examples include: restoration, fencing, siding, windows, remodeling, flooring, window treatments, and residential or commercial painting.
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Subscription-model
Alternatively, consider customers who require lawn-fertilization services. This is typically a recurring service that may be needed bi-monthly (if not more frequently). Each service is low-ticket, but due to the ongoing nature of these services and the ability to stack many customers daily, this can also be a highly profitable and durable franchise model.
Unlike the roofing example above that can rely on contractors, a subscription model will have higher fixed costs. Lawn care companies require consistent labor employees, equipment (sprayers, spreaders, trucks, trailers, etc.), and possible in-office personnel in addition to your general manager. These costs add up.
However, dissimilar to roofing, which relies on strong sales skills, customers for lawn care may not even talk to a salesperson. With integrated technology (which is increasingly common in these franchises), your customers may simply book online or request virtual quotes from a national call center. Another value-add to the subscription-model is that your customer base is essentially unlimited. Less time will be spent finding customers and building out each project to match their needs. A lawn care company offers a specific set of services that can be templatized and repeated as a plug-and-play service.
Other “subscription-model” franchise examples include: irrigation, pest control, pool maintenance, HVAC, window cleaning, restaurant hood cleaning, parking-lot maintenance, pet grooming, child enrichment, and senior care.
While you’ll certainly learn lessons as you go, in franchising in particular, it’s important not to put the cart before the horse. The franchise model you choose at the beginning of your franchise ownership journey can be the difference between success and failure. Ensuring a compatible match upfront is vital for longevity in your future business.
