Most people do not understand the difference between authorized dealers and franchises and use these terms interchangeably. This is, however, a mistake. Read on to learn the difference between authorized dealers and franchises directly from an experienced Florida Business Lawyer.
Understanding the Difference Between Authorized Dealers and Franchises
A franchise is an agreement between the owner of a brand, known as the franchisor, and another party, known as the franchisee. This agreement comes with the benefits of obtaining services, products, and support from the franchisor.
There are three categories of franchises. First, there are product distribution franchises. These franchises are an outlet for products, and the concept is comparable to supplier-distributor relationships. This category is often used for both small and large products. Big-name brands that use this type of franchising are the Ford Motor Company and Coca-Cola. Although this is not the most popular type of franchise, this concept represents the highest percentage of retail sales in the United States.
Next, we have management or system franchises, under which a franchisee is authorized by a franchisor to conduct business according to a comprehensive system developed by the franchisor. Under this franchising concept, the franchisee focuses on managing the business by using the franchisor’s business growth and success strategies. Famous examples of this concept include companies like Hilton.
Finally, we have business-format franchises, which are also known as manufacture or process franchises. Under this franchising concept, a franchisor provides the franchisee with critical information regarding the way they should run their business. This type of franchise is what most people think about when they hear the word franchise. A franchisee gets the right to use the trademarks, trade names, and business practices of an established brand. However, the franchisor is typically heavily involved in the operations of the business and provides strict guidelines the franchisee must meet. One major benefit that comes with this type of franchise is that franchisees receive training, advice, and support from franchisors. Some of the most popular examples of this type of franchise include McDonald’s, KFC, and Starbucks.
Authorized dealers, on the other hand, are retail distributors. The difference between authorized dealers and franchises is that authorized dealers have more independence when it comes to the availability of products, design, etc. Usually, authorized dealers have the right to use the logo and name of the parent company and offer the same products and services. However, authorized dealers do not make their products; instead, they help in the sale and distribution of products made by another organization. The most well-known examples of authorized dealers are car dealerships.
Now You Know the Difference, But Which One Is Better?
There is no right answer to that question. The answer depends on a number of factors – including personal preference – as both structures have many advantages.
Franchises have the advantage of having business growth and success strategies that have been proven to work, in addition to a known brand with which the public is already familiar and a good reputation, which means there is not a huge need to advertise, which saves costs. In addition, franchises are “turn-key” businesses, which means that franchisees start to operate and make money as soon as they get the keys to their new business. Finally, one of the main advantages of operating a franchise business is that franchisees get hands-on training and support from their franchisors.
Authorized dealers, however, also have many unique advantages, such as flexibility. Unlike a franchise, an authorized dealer can develop their own business strategies, which is why this route tends to be a better choice for business owners who have an entrepreneurial mindset and know exactly how to create and implement business growth strategies. While franchises come with a set of strategies that have worked in the past and will probably continue to work in the future, some people simply prefer to have the freedom to create their own strategies. Do you have any questions?