Which Franchise Model Is Right for You?

You've basically got two choices: A business based on location or service. Here's how to decide.

- DAVID BUSKER

When people want to become franchisees, they have to make a big decision: What type of business do I want to run?

There are thousands of brands and concepts to choose from, but they all generally fall into one of two business models. There are “location-based businesses,” such as hair salons and fitness studios, which have retail storefronts where the customer receives the service at a fixed place. Then there are “service-based brands,” like lawn care and moving companies, which do not have a storefront. The service is provided wherever the customer is located.

There are several key differences between brick-and-mortar and service-based businesses—including different criteria to start them and to grow them. Here are the six most important.

1. Investment cost

Real estate is usually the biggest factor here. The more real-estate-intensive a business is, the greater the investment level. That's why location-based, brick-and-mortar franchises generally have higher initial investments than service-based brands, which don't necessarily require real estate. (Some may operate from a home office.)

2. Ramp-up time