As a franchise consultant, I explain to new Franchisors that there are three main types of franchises.

Each of these types requires a different Franchise Agreement:

  • Individual Franchise Agreements
  • Area Development Franchise Agreements
  • Master Franchise Agreements

There are benefits and liabilities to Individual Franchise Agreements, Area Development Franchise Agreements and Master Franchise Agreements.

Individual unit is the most familiar form of franchising. By signing a Franchise Agreement, the Franchisee receives the right to operate a single franchise operation, often within a protected territory.

The Area Development Franchise Agreement grants the Area Developer a protected territory in which to open an agreed-upon number of franchises on a negotiated schedule.

Companies utilizing a Master Franchise Agreement actually give the Master Franchisee the right to perform many of the functions of the Franchisor, including selling franchises, training and servicing those franchises and earning the majority of the initial franchise fees and royalties coming from those franchises.

There are benefits to utilizing an Individual Franchise Agreement program:

  • You can more easily manage your growth as a Franchisor.
  • Many believe an owner-operator is the most productive manager to be found.
  • A Franchisee-managed location is often more cost-effective because there is no manager’s salary.
  • By utilizing the Individual Franchise Agreement approach, you can learn how to be a Franchisor by selling only a few units your first year.
  • There are far more people out there who can afford to open and operate one franchise rather than several locations.
  • If you find there is a problem with a Franchisee who has signed an Individual Franchise Agreement, the issue only impacts one location.
  • By signing an Individual Franchise Agreement, you can determine if the Franchisee has the ability to operate more than one franchise before committing to them.You can then grant additional operations using your Individual Franchise Agreement.

There are also negatives to using the Individual Franchise Agreement strategy:

  • The more different Franchisees, the more complex it is to operate as a Franchisor.
  • It is more costly and time consuming to market and service individual units than a multi-unit operator.
  • Adding one franchise at a time may result in slower growth.

We advise you to study the various types of Franchise Agreements and determine which one(s) are best for your company.

If you would like to speak with one of our franchise consultants today, please don’t hesitate to call (706) 356-5637!