When it comes to how Home Builders structure their businesses, there really isn't a simple answer. There are so many different ways to do it - but - today, I'd like to talk about two ways that some Home Builders choose to go with their businesses (either as their entire business model OR to supplement their primary business model).
I'm talking about two business opportunities that offer Home Builders "pre-packaged" business services to help streamline operations: Franchising and Licensing.
Let's break each one down so you know the difference:
Franchising
Franchising a business is pretty much a full-service, turnkey package. A Home Builder would pay a company to use its operating practices and - in a home builder's case - its floorplans, estimates, etc.
Typically, these are restricted to certain areas (states, zip codes, etc.) and the franchising company limits direct competition for the fees paid to them.
The nice thing about franchising is that it allows you to follow a proven system to lower the learning curve of learning the business. So, if you're newer to the industry (or want to try out a new product type), this might be the way to go.
The fees are higher (initial investment plus ongoing fees for the support and other services provided by the franchising company). There is also less control over what you can do - since you are buying into a brand that needs to keep standards, etc.
A good non-homebuilding example of a franchise is McDonalds. Owners who buy into that franchise are expected to follow operating procedures and offer the same products to their customers. For customers, they know what they can expect when they head into any McDonalds.
Homebuilding Franchises are similar - in that the "experience" of building a home AND the floorplan offerings are the same. Perhaps site amenities (community pool, etc.) also are very similar.
I work with many franchisees of the Epcon Communities - a company that sells franchises geared towards the 55+ Buyer. Epcon franchisees get floorplans that are pre-estimated - and - there are preplanned options that Home Builders can sell.
Licensing
Similar to franchising, Licensing offers Home Builders can pay a fee to a licensing company to use an idea, name/logo, and designs. Unlike a franchise agreement, a licensing agreement does not necessarily offer pre-packaged services nor exert full control over a licensee's operations.
Essentially, a Home Builder would obtain rights for a certain asset (like a marketable name), AND the Home Builder has more freedom to do things they way they want with that asset (instead of following a strict operating procedure and/or product offering).
Oh - there are restrictions (I mean - there's a value to what is being licensed that the licensing company wants to protect) - but there is generally a bit more leeway for a Home Builder.
Which Is Right?
In short, whichever might work better for the Home Builder - if even at all. Most Home Builders have their own floorplans and processes and don't even consider either one of these business structures.
Some Home Builders do one of these structures exclusively. And others just add on to their existing business to have a different type of revenue stream to follow.
I'd love to hear your thoughts on this. So, go ahead and hit REPLY and let me know what you think!
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