Choosing a Franchise Business : Product or Service?

You’ve decided to launch a franchise business instead of starting up something from scratch. Congratulations on making this important choice!

Next comes a decision that could prove just as important to your success as an entrepreneur: whether to buy a franchise that retails a product, like McDonalds, or provides a service, such as ServiceMaster cleaning franchises.

The two franchise business paths – product or service – differ dramatically

Every franchise system has some common denominators, such as a concept owner, a fee structure, a royalty system, and a marketing and administrative program. But the nature and operations of a franchise business differ radically in pushing a product or a service.

“Retail franchises traditionally are opportunities that are driven by having a building, opening the door and waiting for people to walk in, whereas with a service business you’re typically heading out to do the business,” says Lori Kiser-Block, vice president of FranChoice, a Minneapolis-based company that helps entrepreneurs choose a franchise business.

Pros and cons of selling a product as your franchise business

Most product-oriented franchise businesses sell some sort of food, so operating them is like running a small factory. Your up-front investment in the franchise business, and especially in local real estate for the store, will almost always run into the low six figures. The many day-to-day issues include maintaining proper inventories, ensuring quality, keeping up the grounds, and hiring and managing lower-skilled employees.

Typically, you don’t have to worry about pricing, because headquarters sets that. And most of the marketing is done for the franchisee through national, regional and local programs sponsored and run by the franchisor. The franchisee’s role is largely to keep his doors open and allow the franchisor to drive customers in.

Product franchise businesses can be more exciting than service franchises, because you’re partaking in – and often helping to create – a trend du jour. That means you can make a lot of money in a hurry.

On the other hand, the market can run dry pretty quickly. “A lot of product businesses are fad-based,” says Steve Rosen, chief executive officer of FranNet, a San Diego-based franchise-brokering service. “It goes in cycles. People love coffee or ice cream or high-fat or low-fat stuff; they love or hate donuts. You’ve got to take that into account.”

Pluses and minuses of selling a service as your franchise business

Most service franchise businesses are lesser-known to the public than product franchises, so you have a tougher challenge in establishing your brand locally. Yet, your initial outlay for a service franchise business might be only $50,000 instead of six-figures. You can rent a cheap office somewhere, or operate mostly from home, instead of having to invest in good-looking real estate.

In terms of operating a service franchise, you’ll be supervising yourself and perhaps a handful of more skilled workers. You have more control over your own hours, typically by setting up your work by appointment. So you’ll probably have a good shot at maintaining a normal work week, with nights and weekends off.

Simply put, you won’t have to deal with many of the requirements and issues that plague product-franchise owners. “I can take my revenues and put them into marketing rather than into inventory, getting the word out and bringing business in rather than just putting it into a bunch of boxes,” says Kelly Brott, a franchisee of Pet Butler, in Orlando. She switched to the company – which collects pet waste in residential yards for homeowners and landlords – from a career in retailing with chain-owned stores.

But more of your success is up to you. So what you will have to do is sell your butt off. Though you’ll usually get substantial marketing and administrative support from the home office, your own one-on-one salesmanship and local marketing is crucial to your success in a service franchise business.

How your choice of a franchise business fits with you

Match your choice to your own personality, aptitudes, skills and background. The main thing to keep in mind is that succeeding with a service business absolutely requires you to be a good salesman, while success with a product rests more on being a good manager.

David Wright has done both. The former computer salesmen ran three franchise outlets of Jersey Mike’s Subs for eight years, and sold them off recently to buy a franchise of Proshred, an office-paper shredding company. “I wanted to get back into a business-to-business setting, like where I started my career,” says Wright, of Charlotte, N.C. “And I wanted a regular work week.”

Our Bottom Line

Deciding whether to sell franchised products or services is a huge choice. Be sure to thoroughly investigate the differences in franchise business models, which are substantial.  Then choose the franchise business that best fits your business abilities, your entrepreneurial ambitions and your lifestyle.


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