Franchising Business Models Explained

The franchise model is great because most people who are entrepreneurial want flexibility and time to do what they love.

Rory Vaden

Franchising refers to a business model where the business owner (franchisor) gives an individual or group of individuals (franchisee) the right to run operations under their name, with complete access to the brand’s trademarks, products, and customer loyalty, among other things.

Franchising business models offer an easy and reliable way to set up and manage your business, with additional support and security.

However, each franchise business plan is unique and can change depending on how the franchisor runs their company.

This post aims to explore the top five franchising business models, including:

• COCO: Company Owned Company Operated
• COFO: Company Owned Franchise Operated
• FOFO: Franchise Owned Franchise Operated
• FOCO: Franchise Owned Company Operated
• FICO: Franchise Invested Company Operated

5 Key Franchising Business Models

Here are some main franchising business models, key features, and advantages. Read along

1. Company Owned Company Operated (COCO) Model 

COCO is a franchising business model in which the company owns and runs the franchise. This means that the parent company fully runs and finances the franchise.

Tesla, Apple, for example, operate their flagship stores on the COCO model.

Key highlights

• Also called a flagship model, the COCO model is a trial-and-error system for businesses. 
• If a franchisee wants to learn how the business operates, they can work there for a set amount of time and pick up the essentials.
• If it proves successful, it can be expanded into a franchising system.

Advantages of the COCO model

• The business strategy enables the organization to develop and flourish in areas where franchisees find it difficult to prosper.
• COCO franchising model helps a company better own its customer experience and quality.

2. Company Owned Franchise Operated (COFO) Model

This franchising model involves the parent firm investing in the franchise, which is subsequently managed according to the company's requirements. It is not a frequent franchise business model because businesses that invest in using a franchise model to expand typically would rather own their operations.

Key highlights

• In this model, a company or brand invests in a franchise business, and the franchisee, in turn, runs the operations as per the company guidelines.
• This franchising model is very unusual in the market since brands mostly establish themselves independently.

Advantages of the COFO model

• There are no expenses associated with operating this business model for franchisors.
• The model leads to enhanced productivity and efficiency since entrepreneurs manage the outlets.
• The model allows the company to open franchisees in several places due to consistent brand standards and operational consistency. 

3. Franchise Owned Franchise Operated (FOFO) Model

FOFO is a franchising business model in which the franchisee contributes capital and owns the operational expenses. In this model, the franchisee manages the entire operation within the guidelines defined by the franchisor.

This is the most common and popular franchise model used in the market. Franchisees can effectively manage their outlets with the brand's end-to-end support while getting the advantages of a well-established brand and direct ownership. Within this franchise business model, there are two different variations:

• The stock is purchased by the franchisee, from the franchisor.
• The franchisee is stocked by the franchisor.

A lot of well-known brands like Subway, KFC, Burger King, and others have expanded via FOFO models.

Key highlights

• It is a commonly adopted model by established brands.
• The franchisor incurs minimal ongoing and one-time expenses. 
• As franchisees make maximum investment in this model, they get the most of the revenue. 

Advantages of the FOFO model

• The franchisee can reasonably expect a decent and predictable return on investment based on the strength of the franchise brand and experience in the market.
• Franchisees can find franchise opportunities across different budgets.

4. Franchise Owned Company Operated (FOCO) Model

The FOCO model involves the franchisee or investor investing in the outlet, property, and additional expenses, while the franchisor manages and operates the business. Brands like Del Taco, Bistro 57 have adopted FOCO to expand.

Key highlights

• In this model, the franchisor trains the employees and manages the daily operations.
• The franchisor controls the quality of the product and the overall service that customers experience. 

Advantages of the FOCO model

• Franchisees do not have to be involved in the day-to-day operations.
• The customer experience is owned by the brand rather than the franchisee owner.
• The franchisee is free from operating expenditure costs.
• The franchisee typically earns a minimum guarantee from earned revenue.

5. Franchise Invested Company Operated (FICO) Model

The FICO model is quite similar to the FOCO model. However, in the FICO model, the franchisee has complete control over the franchise unit’s operations regarding financing. The Cult Fit Gym franchise in India has adopted this model for parts of their expansion.

Key highlights

• Under this model, the investor (franchise) does not participate in day-to-day business operations; instead, they invest in the business.
• The company runs its business operations with end-to-end supply chain control. 

Advantages of the FICO model

• This model is perfect for individuals with the capital to invest but no time tor expertise to run the operations.
• It permits multiple franchisee investors to come together and invest in an outlet as a full-fledged business enterprise.

To Summarize

To establish a profitable franchise business, a franchisee must select a model that best fits their specific goals. As mentioned above, each model has a distinct function. 

Regardless of your business model, you need good franchise management software to grow and manage the chain efficiently and profitably. With Hubler's app-based workflows and automation, you can onboard, verify, and get stores operational 30% faster.