News & Updates


Different Models for Franchising

August 28, 2011

Once you have made the decision to either franchise your business, or acquire the rights to develop a franchised business, there are several franchising options available to you, the availability and advisability of which will depend on the nature of your franchise system, the territory within which you can conduct business and your overall business acumen. The following is a list of three examples:

Direct Franchising: Direct, or unit, franchising is the purest form of franchising a business. Under this model, the franchisor grants to the franchisee the right to open one franchised business at one location, with a specified geographic range that will be protected from other franchised businesses of the same system, for instance the right to open one fast-food restaurant at a particular address. Additional franchises may be granted based on the performance of the first location. In most cases, it will be rare for the franchisee under this model to be required to satisfy performance criteria or sales quotas. 

Area Development: Under an area development agreement, the franchisor grants the franchisee (or, area developer) the exclusive right to open and operate several franchised businesses within a much broader geographic territory. For instance, an area developer may be granted the right to open fast-food restaurants within a particular neighbourhood of Toronto, or maybe the entire province of Manitoba. Area developers typically will be required to open a certain number of stores within a specified time frame, as set by the franchisor.

Master Franchising: Master franchising is similar to area development in that the franchisee (in this case, the ‘master franchisee’) is granted the right to a wide territory. However, as a master franchisee, the territory will generally be larger than under the other franchise models, i.e. an entire province or all of Canada. Master franchising is typically employed by foreign franchisors so that a resident of the territory can expand the system in areas which the franchisor may not be familiar with. As well, master franchisees (though franchisees of the franchisor) will generally be given the right to “sub-franchise”, meaning that they can grant franchises to franchisees within their territory, rather than only operate them themselves. In this case, the master franchisee actually becomes the franchisor.

Tags: Franchising