Most franchise business models fall into one of four types of systems, with each having different structural features, commercial terms and business expectations. 

Establishment/operating costs and fee structures can vary between business format franchise arrangements. They may depend on the intellectual property provided, group buying or compulsory supplier arrangements, margins on goods or services sold by the franchisee, and services provided by the brand owner.

1. A business format franchise prescribes the proven operating format for the franchisee’s business, which could be a fixed commercial location or ‘area’, a home-based business, or a mobile/vehicle-based business. For example, fast food and casual dining networks, dog washing/grooming businesses, or mowing services.
2. A product distribution franchise prescribes distribution of the franchisor’s product or service. For example, mortgage broking and financial services, automotive parts, personal care products, homewares and furniture businesses.
3. Motor vehicle dealership arrangements are a special kind of product distribution arrangement. All motor vehicle dealerships are deemed to be franchise agreements for the purposes of the Franchising Code of Conduct and carry special obligations and duties.
4. Buying groups and other arrangements where the franchisees (who often consider themselves as ‘licensees’ or ‘members’) have considerable business autonomy, and sometimes even own the franchisor entity, but combine to secure economies of scale, or improved access to product and specialist procurement services, to support their businesses.

Other differences between franchise systems

Franchise networks can feature franchisees operating from separate business premises, co- branded business premises, motor vehicles, their homes or online, or a combination.

There can also be significant differences between the supply chain arrangements (that is, how franchisees buy the materials and products needed to run the franchise business).

While most franchisors and nearly all franchisees are small businesses, a growing number of large corporations are becoming involved as both franchisors and franchisees. 80% of franchisees in Australia operate within a large or complex franchise. Increasingly, franchisees are also owning and operating multiple franchised businesses.

Key features of franchising

• Separate businesses operated by the franchisor and franchisees, with each party having different and separate obligations (except for some potential overlap for workplace relations requirements).
• A material level of interdependence between the businesses operated by the franchisor and franchisees.
• Amounts paid by franchisee to franchisor, either as initial or ongoing fees, margin on product, or a combination.
• A level of information imbalance between franchisor and franchisee, or reliance by the franchisee on information provided by the franchisor.
• A material level of ongoing control by the franchisor over the operation of the franchisees’ businesses.

Where a franchisor provides information on which a franchisee is likely to rely there are legitimate expectations in relation to the accuracy and transparency of information. Similarly, if a franchisor has high levels of control there are legitimate expectations as to fairness in exercising any control. A franchisor and franchisees can benefit from programs that deliver education and increase awareness.