Advantages and Disadvantages of 5 Different Types of Franchises

While there’s no way to eliminate the risks of owning a business, franchising offers a safer path to business ownership for first-time and seasoned investors alike. As promising as franchising opportunities can be, the franchise space is vast, and it can feel hard to navigate if you’re new to it. 

Franchising continues to grow with no signs of stopping. In 2025 alone, the International Franchise Association estimated that the number of franchises in the United States would grow by over 20,000 units to reach a total of 851,402 nationwide. 

However, not all franchises are the same – in fact, there are five main types of franchises to be aware of as you begin to think about investing. Each has its own pros and cons, and by better understanding what they can offer, you’ll be able to find the best fit for your skills and goals.

Let’s take a closer look at the five primary franchise types.

5 Main Types of Franchises

1. Investment Franchises

Investment franchises are just that: investments. Hotels and large chain restaurants are often investment franchises. On the pro side, after you write the check, there’s very little for you to do. It’s also possible to enjoy large financial returns. But the high buy-in can be prohibitive, and since you won’t be a hands-on owner, you won’t gain much business experience with this model. When you sell this franchise, be aware you may owe capital gains taxes.

2. Conversion Franchises

Some established franchise brands offer independent business owners the opportunity to join their system. The business will rebrand and adopt the franchise’s systems, though they’re usually able to retain their staff. This can happen with nearly any type of franchise but is common with service-based franchises – think of medical clinics, plumbing companies, or real estate firms. While entrepreneurs who are used to doing things their own way may struggle with the loss of autonomy, most conversion franchise owners find that the support and resources they receive from their franchisor is well worth it. 

3. Product Franchises

When you own a product franchise, you’re able to sell the franchisor’s product without following their systems. Car dealerships, gas stations, and bottling companies are some of the best-known kinds of product franchises. For many product franchise owners, the appeal comes from being able to establish their own identity. You don’t have to use the franchisor’s brand name; instead, you can operate under your own name while providing customers with a well-known brand. On the downside, you’re often restricted from selling other brands, and the franchisor does not support you beyond supplying product. The work of building the business is up to you. 

4. Business Format Franchises

When you hear the term “franchise”, what you’re likely imagining is a business format franchise. Some of the best-known business format franchises are quick-service and fast casual restaurants, but convenience stores and fitness centers also fall into this category. Unlike the other types of franchises, business format franchise owners become a part of the brand and have access to the company’s business model. 

The franchise pros for these businesses are many, but the biggest advantage is the support you get from your franchisor. Your franchisor is committed to your success, and they will show up for you every day. When you invest in a business format franchise, you receive in-depth training, helpful resources, and continued opportunities to grow. On every level, it’s a safer, more straightforward way to build a thriving business.

On the other hand, business format franchise owners are required by the terms of their franchise agreement to follow their systems and procedures. If you feel strongly about how you’d like to run your business or the services you’d like to provide, this may not be the right choice for you. It’s also important to keep in mind that, in exchange for the support you receive, you’ll pay several recurring fees to the franchisor. The fees are usually drawn from your gross sales. If keeping all of your profits is important to you, you might prefer a different franchise type.

5. Service-Based Franchises

In many cases, service-based franchises are a kind of business format franchise. Rather than selling products, as a retail or foodservice franchise does, you are selling services. Most home improvement franchises are service-based, like pet care and senior care franchises. 

In addition to the benefits that business format franchise owners receive, service-based franchise owners are usually lower in both initial and long-term cost. Service-based franchises can often be run from home and staffed with fewer people, usually five or less. This type of franchise allows for more flexible scheduling in terms of the hours and days you work. They’re great opportunities to find the work-life balance you’re looking for while meeting your financial goals.

Find the Best Franchise Type for You

As a leader in the home franchising industry, Home Franchise Concepts offers a robust family of brands. One is sure to be the right type of franchise for your goals and interests. Our brands provide the best services in home improvement, including residential cleaning services, mobile pet grooming, remodeling, and more. To start your journey to franchise success, inquire now, and one of our franchise advisors will be in touch with more information.