If you are looking to begin or expand your business through franchising, there are different types of franchising models to suit your business needs and investment capacity. Until now, FOFO and FOCO models remain the most prevalent models. Franchising agreements, its pros and cons, and things to keep in mind before entering into franchising agreement have already been covered in our previous article. Following are the types of Franchising models:
FOFO (Franchise Owned Franchise operated) –
- FOFO model is the most popular franchising model. All the investment and operational costs are borne by franchisee while the brand name and trademarks are provided by the company which the franchise is authorised to use for a fixed period of time.
- Franchisee pays the company a certain percentage of revenue.
- Usually, franchisees are also required to pay a lump sum payment at the time of agreement for using brand name and trademark.
- Franchisees who are willing to invest large sums of money may choose the FOFO model.
- Companies don’t have to worry about operations and hiring employees but it can also turn into disadvantage because franchisee may take liberties and might not adhere to company’s guidelines regarding operations.
- Companies ensure compliance of standards through regular audits to avoid such situations.
FOCO (Franchise Owned Company Operated) –
- This model mitigates the risk for both the parties and is increasingly getting popular.
- In FOCO model, operations are managed by the company (Franchisor) while the investments are made by franchisee.
- It is ideal for new entrepreneurs who want to expand their business but don’t have the capital. They also get to maintain operational and quality standards as operation is in their own hand.
- Franchisee receives a fixed share of profits by the company. Franchisee owners who want to receive profits on their investments without involving in operations should opt for FOCO model.
- Advertising, logistics and staff are also managed by company only.
FICO (Franchise Invested Company Operated) –
- In this model, Company manages the operations while investment is made by the franchisee.
- Companies are required to pay a fixed amount to franchise.
- Difference between FICO and FOCO is that in FICO, the franchisee doesn’t get involved in the operations at all.
- This model is ideal for those who have the capital to invest but lack the time to spend on operations.
- FICO model also permits multiple franchise investors.
COFO (Company Owned Franchise Operated) –
- In COFO model, company owns the business while operations are handled by franchisee.
- It is ideal for companies who want to reduce their operational expenditure, although in some cases companies can cover parts of operational costs as well.
- It is ideal for already established markets of the company where it enjoys goodwill of the customers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.