Different types of franchising agreements

The franchising method has become immensely popular in the UK in the past few years. Reports suggest that franchising has played an important role in strengthening the UK economy.

Franchising, in the simplest terms, can be described as the agreement between a franchisor and a franchisee in which the franchisee obtains the right to conduct business under the name of the original organisation. However, franchising is not as simple as it sounds and can be broadly classified on the basis of different franchising agreements.

Following are the major categories or types of franchising methods and agreements:

Manufacturing franchise

In this method, the franchisee can manufacture the products and services of the main organisation. The franchisee can also sell those services or products on the market using the brand name of the original organisation. A manufacturing franchise agreement is generally common in the food industry. The franchising company gets an initial fee in this agreement.

Business franchise

In this franchising method, the franchisee purchases products from the franchisor. The franchisee then also distributes the products to consumers. Vending machines are a common example of a business franchise type of agreement. In this method, the franchisee purchases the vending machines and gets a share of the revenue earned.

Product franchise

A product franchise functions on the basis of the agreement that the franchisee will distribute the products of the franchisor to the customers. The franchisee can also use the brand name of the organisation. The franchisor will have to pay a franchise fee in this particular type of franchise.