Are You More Suited to a Product or Service Franchise?

20/08/2018 18:00 | Start a business

Product or service franchise

As in the wider business world, franchises can be divided into two different groupings. There are those who sell products, and those who sell services. While these two different types of franchise share a number of similarities, they can be quite different in many other ways. It's also true that different types of franchisees suit either product or service-based franchises and probably have a better chance of success in one or the other. This makes selecting the right type of franchise incredibly important. Here, we take a look at the two different types and discuss their respective advantages and disadvantages.

What is the product franchise industry?

Product franchises are those associated with a specific, physical good or range of goods. The product can be anything it could be cleaning products, foods, or digital devices but its highly likely that the franchisor will set certain standards for the product or require the franchisee to purchase the product from a specific supplier.

A number of factors will influence the success of a product based franchise. These include the location of the franchise, the availability of skilled labour, and their ability to effectively market the business to the target demographic. A product franchise must maintain the quality of its products across the entire franchise network, otherwise, their reputation is likely to suffer irreparable damage.

What are the pros of the product franchise industry?

Theres a wide range of product-based franchises, some of which can count themselves amongst the most successful franchises on the planet. McDonald's (burgers and fries), Subway (sandwiches), and Starbucks (coffee) are all product franchises.

The advantages of operating a product franchise vary depending on how much responsibility the franchisor is willing to take on. Many product-based franchises will take care of pricing structures and marketing campaigns for the franchisee. This allows the franchisee to focus on other tasks. Product franchises also benefit from selling something physical. Consumers find it far easier to appreciate the value in physical objects than with abstract services and, to a certain degree, feel a greater sense of satisfaction when purchasing physical products.

What are the cons of the product franchise industry?

There are two main disadvantages to product-based franchises. First, their products are often subject to the whims of consumers and often suffer from the ups and downs of fads and phases. While you can make a lot of money while the times are good, you can get into serious trouble if your product goes out of fashion.

Second, product franchises are usually much more dependent on disposable income. Consequently, economic downturns and recessions can have a big impact on your ability to turn a profit. At best, this may mean diminished margins. At worst, it could force store closures.

What is the service franchise industry?

The service franchise industry encompasses those franchise companies that provide a service rather than a tangible product or good. Rather than selling a thing, theyre selling an action or a process. The service franchise industry includes businesses like estate agents, accountants, business training services, or management consultants. They usually involve skilled workers utilising their technical expertise to fix niche problems.

Service-based franchises generally require lower overheads, as theyre often not dependent on a fixed premises and can be operated remotely from home or on the move. The lack of a fixed business address means marketing plays an important role in raising public awareness of service-based franchises.

What are the pros of the service franchise industry?

Service franchises generally benefit from a smaller franchise fee and lower start-up costs. This makes them an attractive prospect for many investors. As a provider of niche services, you'll also find it easier to distinguish yourself from the competition because there's generally less of it.

Compared to product-based franchises, service franchises are often considered essential. They offer things that you need to use, rather than things you want to buy. Whereas products are often bought impulsively for no other reason that you feel as though youd like to own or consume that product, services are purchased to fix important problems.

Finally, service franchises are usually more flexible than product franchises. You can often work fewer hours, operate remotely, and dont need to be tied to a specific business premises.

What are the cons of the service franchise industry?

There are a number of disadvantages to operating a service-based business in the franchise system. First and foremost, you need to be a disciplined and organised individual, who is able to motivate yourself and deliver results, even though there may be less pressure to work specific hours or complete certain tasks. For many franchisees, the problem with service-based franchises is the fact that you often have too much freedom.

Service-based franchisees also need to be aware that they may receive far less support from their franchisor than product-based franchises. While it's likely that training, some guidance, and digital systems will be provided, the rest is up to you.

What suits you best?

It's difficult to know whether you're more of a product or service-based franchisee without knowing what motivates you, how you work, and what your main skills are. If you're capable of working independently and have a specialised skill set that could be put to good use, a service-based franchise may be the option for you. If you're more interested in delivering concrete products and are satisfied by the customer's enjoyment of your goods, a product-based franchise is probably for you. Essentially, it comes down to personal preference, experience, inherent abilities, and personality types.

Conclusion
While there are noticeable differences between product and service franchises, most franchisees dont have to think too hard about which they want to be involved in. In most cases, franchisees feel a natural attraction towards one or the other. If youre really confused as to which plays to your strengths, it may be a good idea to contact both a franchise in the service industry and a franchise in the product industry. Discuss the issue with each franchisor and see what kind of applicant theyre looking for and whether you fit the bill.

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