Franchising is one route to small business growth, and for many Utah businesses, developing a franchise system is a sound approach. For some, however, product distribution could offer a better path to expansion.
Is franchising right for your Utah business, or should you consider distribution instead? The right answer depends primarily on your needs and goals.
How Does Franchising Work?
Franchising occurs when a franchisor grants someone else — a franchisee — the legal right to sell goods under the trademarked name of their established business.
With franchising, the expectation is that each franchisee will duplicate your business model. As a franchisor, you must provide more than just merchandise — you’ll need to provide the blueprint for how to achieve success. This typically means offering ongoing training and support in marketing, processes and technical operating systems advice.
In exchange, franchisees make a flat payment and pay ongoing royalties as dictated by the franchising agreement.
How Does Product Distribution Work?
Like franchising, product distribution involves allowing an independent party to sell your goods. However, that’s where the similarity ends between these two approaches to business expansion.
Product distributors do not operate under the trademarked name of your business — they operate under their own company names. In addition, their goal is not to duplicate your success. Instead, distributors function as your product suppliers and can conduct operations as they see fit.
Distributors purchase your business goods and warehouse them in their own facilities, then resell the products to retailers or directly to consumers. They are usually not obligated to do anything other than maintain stock and reach minimum turnover levels.
Should You Expand Your Business via Franchising or Product Distribution?
Growing your Utah business through a distribution channel requires much less of your time and money than franchising, but it also affords you much less control.
With franchising, you can maintain tight control over business operations. You’re in charge of decisions about product pricing, marketing and more. With distribution, you simply supply the products. You can make suggestions on how the distributor might approach marketing and delivering the goods, but you won’t have a legal avenue to enforce those plans.
Franchising and product distribution aren’t the only viable ways to grow a business. You might, for example, consider diversifying your product line or opening another company-owned storefront. The experienced franchise attorneys at the Franchise & Business Law Group can offer expansion advice tailored to your particular business situation.
The Franchise & Business Law Group attorneys have the knowledge and expertise to answer all your questions about expansion. Contact our Salt Lake City office to schedule a consultation today to discuss product distribution, franchising and other paths to growth for your Utah business.