What is the Difference Between a Franchise and An Authorized Dealer?

Legal Article

What is the Difference Between a Franchise and An Authorized Dealer?

Most people use the words franchise and dealer to describe the same thing. However, there are a few important distinctions between franchising and an authorized dealer that you should understand before taking on or giving anyone else either of these titles.

What is a Franchise?

A franchise agreement is when a brand owner allows another entity to receive the benefits of the brands ability to obtain products, services, and support. In a franchise agreement, the franchisee—the person buying into the already established brand—will normally have to follow a set rules that helps this branch of the company conform with the branding and services of every of franchisee. There are three categories of franchise agreements: product-distribution, management, and business-format.

A product-distribution franchise is also known as a traditional franchise since this model focuses on creating an outlet for products. This franchise model is comparable to supplier-distributor relationships and is also often used for larger products such as cars. Although the product-distribution franchise method is not the most popular option, it does represent the highest percentage of total retail sales.

A management franchise is also referred to as a system franchise. This particular method is when the franchise will authorize a franchisee to conduct business according to a set of company rules. This allows the franchisee to focus on managing a storefront while using proven success strategies. This franchising option is best for those who want to develop their business through oversight and management.

Finally, a business-format franchise is known as a process or manufacture franchise. Using this concept, the franchise gives the franchisee the critical information on how to successfully run the business. A franchisee gets the rights to trademarks, trade names, and business practices. Additionally, under this concept, the franchisor is heavily involved in the business and provides guidelines as well as expectations that the franchisee must comply with. This franchising method is the oldest and most popular out of the three options.

What is an Authorized Dealership?

An authorized dealer is essentially a retail distributor. While franchisees are bound by a set of corporate rules, dealers have more freedom when dealing with the design of their store and availability of products. In most cases, a dealer will have the logo and name of the parent company and offer the same products. The big difference is that dealers do not make the products their seal but instead help in the sale and distribution of these products. Additionally, dealers often enjoy the benefits of advertising from their parent companies and receive training from them as well.

Franchise Advantages

Most entrepreneurs want to create a company from scratch. Doing so allows them to can mold and form the business in whatever way they desire. However, there are a few reasons why one should consider buying a franchise over opening their own company.

First, the main benefit associated with buying a franchise is that there is already an existing customer base. You know what revenue should look like and can create a plan to further build your presence in the area of your store. While there will likely be a set of corporate rules you must follow when buying into an established franchise, there are still many ways for entrepreneurs to experience the freedom and business formation process they desire.

Secondly, when buying into the franchise, you not only have the support of the main franchisor, but also of other franchisees. Being able to consult people who have already succeed in the space you are trying to break into can help you avoid many mistakes that new business owners make. Further, because you are talking about the same product, you will have the ability to pick the brain of someone who knows the business model and type of community interested in your product.

Authorized Dealership Advantages

The main benefit to utilizing a dealership instead of a franchise is that you have more flexibility in your business model. You can usually start and operate your business as you wish unless the specific dealership mandates otherwise. While you may have contractual agreements as to signage, product location or product use, you are often allowed to carry other brands or even competition to your dealer’s brand. While you may receive ongoing support, it will likely be linked to a sales presentation to persuade you to buy more product.

Contact Our DC Law Office for More Information

Finally, for more information on what is the difference between a franchise and an authorized dealer, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding business law, check out our blog.