The beauty of the franchise world is that it offers a wide range of ownership models and investment strategies, each catering to different types of investors.
Whether you’re an entrepreneur looking for hands-on involvement or an experienced business owner seeking passive income, there’s a franchise model out there for you.
But how do you decide which one is the best fit?
In this breakdown, I’ll walk you through the key franchise ownership models and investment strategies, giving you real-world examples and data to help you make an informed decision.
1. Emerging Brands:
These are first-to-market franchises with the potential to become a brand name in their industry. SoulCycle was an emerging brand in the boutique fitness industry that rapidly became a recognized name. When it started franchising, it leveraged its innovative workout experience to build its brand.
Emerging franchises represent a significant portion of franchise systems in the U.S. According to the International Franchise Association (IFA), 71% of franchise systems have fewer than 100 units, classifying many as emerging brands.
Investors are drawn to these opportunities because they can often enter at a lower cost and grow with the brand as it becomes more well-known, capturing market share early.
2. Brand Name Franchises:
These are established franchises with strong brand equity, a long history, and proven infrastructure. McDonald’s is a prime example. It’s been around for decades, with strong brand equity and systems that allow franchisees to succeed with support in marketing, operations, and logistics.
According to Franchise Direct, top brand-name franchises like McDonald’s, Subway, and Dunkin’ Donuts consistently rank high on franchise success lists, with average revenue per store exceeding $2.5 million in McDonald’s case (Statista, 2022).
Franchisees are attracted to these systems because of the low risk involved-brand recognition and established customer bases translate to higher success rates.
3. Semi-Absentee Franchises:
These are businesses where franchisees hire managers to run day-to-day operations, allowing them to maintain a job or run other businesses. Great Clips, a hair salon franchise, is often chosen by investors looking for a semi-absentee model. Franchisees typically hire managers, and the franchise system provides ongoing support.
In Franchise Business Review’s 2023 Survey, 43% of franchisees said they operate their franchise on a semi-absentee basis, with most operating for less than 20 hours a week.
Investors looking for passive income or those who want to diversify their portfolio without being fully involved in the day-to-day operations are drawn to this model.
4. Executive Businesses That Can Scale
These franchises have a low cost of entry but can be scaled with a full-time ownership role, typically requiring active management at first. FASTSIGNS, a sign and graphics franchise, allows owners to scale their business by opening multiple locations or adding new services to the franchise model.
Franchise Direct notes that scalable franchises in sectors like business services (FASTSIGNS) have seen an average annual growth of 5-7% as franchisees expand into multiple units or territories.
These businesses offer a low-risk entry point with the potential for significant growth by expanding into additional locations or territories over time.
5. Home-Based, Low-Cost Franchises
These franchises have low overhead and can often be run from home, offering flexibility and reduced risk. Cruise Planners, a home-based travel agency franchise, allows franchisees to operate from home with minimal overhead while leveraging strong brand support and technology.
According to the Small Business Administration (SBA), home-based franchises typically require initial investments ranging from $10,000 to $50,000, making them attractive to entrepreneurs who want to minimize risk.
These franchises are ideal for those looking for low start-up costs and the ability to balance work-life responsibilities. Many franchisees in this category are first-time business owners or those seeking flexibility.
6. Multi-Unit Franchises
For investors interested in scaling, this model allows them to operate multiple locations and benefit from economies of scale with shared management resources. Taco Bell franchisees often own multiple locations, leveraging economies of scale by centralizing management and back-office operations across several units.
According to Franchise Times, 53% of franchisees in the U.S. own more than one unit. Multi-unit franchisees often see an increase in profitability because they can streamline operations and share resources between locations.
Investors who want to scale quickly and have the capital to manage several locations can multiply their revenue streams, maximizing efficiency through shared resources.