An important decision that potential business owners must make when considering a franchise is determining what type of business they should run. There are thousands of brands and concepts, but franchises generally fall into two business models:brick and mortar“and”service based.”

Think of a franchise you know. One that offers services that you use over and over again. Is it one hairdressing? or fitness studio? or lawn care the company? or moving and removing waste service?

These are all franchises, but in terms of a business model, hair salons and fitness studios fall under one umbrella – location-based businesses with retail storefronts where the customer receives service at a fixed-based location. In the meantime, lawn care company and the movement service falls under another umbrella – service based brands — which have no storefront or customer-facing real estate and service is provided at the customer's location.

Here are some of the main differences between brick and mortar and service-based businesses, so you are more informed when choosing a franchise model.

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1. Investment cost

Real estate is what usually leads franchise investment costs. The more intensive the real estate, the greater the level of investment. Location-based, brick-and-mortar franchises generally have higher initial investments. Construction of retail space it can be costly. Imagine a fitness studio — you need bikes and machines, but also a high-tech sound system, TVs, changing rooms, showers, etc. Not to mention the flooring and interior architecture.

On the other hand, a service-based brand does not necessarily require real estate (some may even operate from a home office). Some service-based brands require storage space to accommodate vehicles or equipment that are deployed at the customer's location. Less visible and lower cost industrial spaces are ideal for these franchises. Typically, these spaces require little rental property improvements over a customer-facing retail space.

So what can you expect investment costs be for each of these options for a single unit or territory? Although not definitive (there are always exceptions), the usual range is:

• Brick and Mortar: $250,000+
• Service-based brands: under $300,000

2. Take-off time

Growth time goes hand in hand with investment costs. The time it takes to grow to a monthly positive cash flow and establishing repeat business both indicate important standards for any sustainable business. In terms of speed, service-based brands are more likely to grow quickly due to a lower initial investment cost and lower overall fixed costs. Let's examine one brand moving service. Once you have the equipment and employees in place, month to month operating costs are more closely related to income growth; thus, these models can often grow in cash flow more quickly.

Alternatively, a brick-and-mortar brand (like a salon) will have high upfront investment costs (retail space, individual stations, chairs, mirrors, washing/drying stations, etc.) and will likely take time to establish a strong customer base in a particular community. However, they tend to have more repeat business and stable revenue streams over time.

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3. Scalability

Brick and mortar businesses are usually more scaled. Once you have a single successful franchise, it's easier to manage and build an empire by spreading costs across multiple locations. But remember, due to the expensive initial investment, construction costs will be similar every time you open a new location.

With a service-based brand, rather than building more physical locations, you can expand your territory and drive more penetration within your territories. While this is not without additional costs (consider gas money, employees to keep up with demand, more frequent equipment maintenance, etc.), it requires additional investment as your revenue justifies it and creates economies of scale. By buying other territories in a service-based brand, you increase your value Income and income multipliers without the same proportional increase in capital investment.

4. Technology

One area that is relatively equal in terms of usefulness and accessibility is technology. In the last years, technology has transformed exclusivity. In particular, repetitive but necessary tasks have been streamlined and simplified through technology. For brick-and-mortar brands, it's common to see customers pLANNING direct services (hair appointments, fitness class reservations, etc.). For service-based brands, customers can book service calls and employees can perform real-time tasks to keep the business moving, such as ordering parts, creating estimates, etc.

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5. Location Risk

Location is key for brick and mortar franchise brands. It is often one balancing act for finding real estate that is within an acceptable price range and in a popular location that creates ongoing repeat business. You will be providing services at a fixed location, so the further away you are from the customer, the less likely the customer will travel to your location. For example, a fitness studio it should be convenient for customers to come to your location three to four times a week. The more often a customer would ideally like to visit your franchise, the higher the density needed for the same market radius.

For a service-based brand, location is not as important to overall success. Since you or your employees will travel to the customer's location, there is no location risk and you are free to penetrate deeper into a market. However, it's worth noting that if you expand into multiple territories, you may want to consider renting additional warehouse or storage space to optimize efficiency.

6. Recession resistance

Finally, one factor to consider lies in recession resistance of your franchise. Brick and mortar brands often offer cheaper services. These are everyday services, for sure – hair care, nail salon, etc. – but not always considered essential everyday services. On the other hand, service-based brands are often core day-to-day services that must be performed regardless of fluctuating market trends—think HVAC, plumber, yard careOR restoration.

After all, there is no one-size-fits-all franchise for every potential franchise. But by understanding the basics of these umbrella categories, you can begin to consider which type of business model best matches your business goals.