The Franchise Business Structure: Where Does Marketing Fit In?

No two organizations are perfectly alike, but most franchise business structures fit within some basic categories. The subtle differences between those franchise structures impact how certain expenses, including marketing, are handled.

When organizational boundaries aren’t clear, it can affect how your franchise marketing works.

How Is a Franchise Structured?

There a five primary franchise ownership structures, each designed to meet different industry needs and operations. All share core benefits of the franchise model, including:

• Brand recognition
• Business support and development
• Increase marketing power
• Lower failure rate
• Increased buying power for resources and materials

These are strong incentives for existing and new business owners to join existing franchises ranging from fast food to home services to mobile car care.

1. Master Franchising

The master franchising model is usually the go-to option for international markets. Franchisees collect a fee from franchisees in return for ongoing support, traditionally restricted to training. In many cases, the franchisee has exclusive control of the entire territory, whether it be a single country or with a governmental body. For example, a master franchisor may license a franchisee to operate within the European Union.

This style creates a buffer for the franchisor and reduces its responsibility and liability in working with local governments and regulations.

While the franchisor may provide a marketing budget and resources, most franchisees are responsible for creating and running marketing campaigns within their territory. Many work with third-party agencies to reduce in-house expenses and improve the effectiveness of their budget.

2. Area Representative Franchising

This is similar to master franchising with some key differences. With area representative franchises, area representatives hold exclusive rights to operate within a specific region. These tend to be domestic agreements, limiting agreements to certain cities, counties or subregions. The biggest difference from master franchising is that area representatives are not solely responsible for supporting franchises; they sign contactors with the franchisor, which reduces responsibility and liability for the area representative.

Marketing efforts in this model are dynamic, with most decisions and costs resting with the franchisee. Marketing budget can be based on performance incentives and franchise research, but franchisees typically make decisions and manage marketing themselves.

3. Area Development Franchising

While the names are similar, area development is quite different from area representation. That “development” term means the franchisee agrees to “develop” a specific number of unique locations within a predefined territory. For example, a home services franchisee may agree with a developer to open five cleaning locations in the Detroit metro area within 10 years.

These agreements vary based on the goals, budget and market research, typically conducted by both the franchisee and franchisor. Many development companies conduct their own market research before signing on.

In this scenario, marketing responsibilities are included in the agreement and may change after the contract requirements are met. Once operations are up and running, they may get more or less support depending on the franchise.

4. Individual Franchising

This is one of the more common types of franchise business structures because of its accessibility and lower entry costs. Also known as an owner-operator franchise, a franchisee agrees to own and control a single franchise location with some basic territorial guarantees. The agreement might restrict the franchisor from opening or selling a competing location too close to the first owner-operator; it’s a lesson Subway learned the hard way.

In this model, the franchisor is responsible for most marketing efforts funded through a franchise marketing fee. Many owner-operators will actively market themselves on a hyper-local level; that’s why your local Burger King might also sponsor the local Little League team.

5. Conversion Franchising

Conversion franchising is one of the most common business models for HVAC, plumbing and other home services industries because it’s relatively simple. Existing small businesses convert to the franchise by rebranding and utilizing the franchisor’s sales, accounting, scheduling or other processes. While conversion franchising sounds a like an individual franchise, the agreement usually differs. Because most conversion franchises include established businesses, they have a substantially lower failure rate. That usually makes them more attractive to franchisors, which offer better agreement terms, lower fees and a different incentive system.

Most conversion franchises maintain their existing marketing efforts through their transition and dedicate budget to ongoing local marketing after they rebrand. The franchisor will conduct national or regional marketing, such as a booking website, social media assets or email marketing.

What Is the Best Business Structure for a Franchise?

There’s no one-size-fits-all when it comes to franchising. The examples mentioned above are best thought of as starting points, with most franchise organizations offering different structures over time, based on evolving priorities, goals and opportunities.

New to Franchising? We’re Not!

As a franchise marketing agency, we’ve worked with different structures and industries for over 20 years. We’ve built solid and lasting relationships with franchise clients by adapting our working methods to meet your needs.

Put your marketing team and franchises in a position to succeed; get in touch or call (231) 922-9977 today to learn more!