Distributorship Vs. Franchise

Many Americans dream of owning their own small business. Franchises and distributorships are great ways to do that. There are some distinct differences between the two that business owners need to understand.

The Government's Role

The Federal Trade Commission has rules for both franchise opportunity disclosure and business opportunity disclosure. When investigating either type of business, be sure to ask early in the process to review disclosure documents and agreements.

Product vs. Business

A distributorship is an opportunity to sell a product for a profit. A franchise is an entire business model that provides a product or service.

Investment

Many distribution businesses cost less than $20,000 to open. Most franchises charge $20,000 just for the franchise fee, not to mention the equipment and retail location required to run the franchise. For example, it costs around $150,000 to build out an average pizza franchise.

Income Potential

Distributorship businesses often build income slowly and steadily. Franchise businesses often produce much more revenue a lot faster, but require more overhead.

Business Activities

Most distributors spend their days visiting retail locations and promoting their products. Most franchisees spend their days managing people, running their operations and marketing their businesses.

References

• FTC Francise and Business Opportunity Rules
• Expertlaw