Which Franchise Model Is Right for You?

There are two big ones: You're either a location-based business, or you're service-based. Here's how to decide between them.

- 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-hair salons, fitness studios, lawn care companies, moving services, and more. But they all generally fall into one of two business models. There are "location-based businesses," like hair salons and fitness studios, which have retail storefronts where the customer receives the service at a fixed location.

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.

There are some key differences between brick-and-mortar and service-based businesses. There are 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. Location-based, brick-and-mortar franchises generally have higher initial investments.

Building the retail space can be pricey. Picture a fitness studio. You need equipment, like stationary bikes or pilates machines, but also a high-tech sound system, televisions, changing rooms, showers-not to mention the flooring, interior architecture (walls, stage, various rooms), trade dress, and more.

On the other hand, a service-based brand doesn't necessarily require real estate. (Some may even operate from a home office.) Some service-based brands may require storage space to house vehicles or equipment to be deployed at the customer's location. But these sites are ideally less visible and lower-cost industrial spaces which require few leasehold improvements compared to a customer-facing retail space.