Whether you already own a franchise or you’re thinking about buying one, you may be wondering: is multi-unit franchising for you? Buying multiple units requires a significant investment, so it’s a good idea to first take a close look at this model.
What is multi-unit franchising?
Multi-unit franchising has increased in popularity over the past few decades. With this ownership model, a single franchisee owns and operates more than one unit, traditionally within the same general region. Frequently, the owner buys multiple units and begins by opening a single unit, before eventually opening the additional locations. Multi-unit ownership offers an excellent opportunity for growth and wealth creation.
Your role as an owner will differ according to whether you own a single franchise unit or multiple units. Owning a single location often means you’re on site at one store every day and essentially serve as the manager. A multi-unit owner, while still involved full-time, focuses instead on scaling the business and “bigger picture” strategy and operations. As a multi-unit owner, you’re more likely to hire a manager to run the day-to-day functions. Building a strong team is essential to support operations across multiple units and ensure consistent performance.
Advantage: Diversified Income Streams
Owning a multi-unit franchise provides the significant advantage of diversified income streams, which can substantially enhance your financial stability. With multiple locations generating revenue, you are not entirely dependent on the performance of a single store. This diversification means that you have several streams of income that can collectively contribute to your overall financial health, ensuring that a temporary decline in one location is less likely to drastically affect your bottom line. The ability to manage a portfolio of businesses allows you to leverage the strengths of different locations, potentially tapping into varied customer bases and market demands, simply enhancing your opportunity for wealth generation.
Advantage: Risk Diversification or Management
The risk diversification inherent in a multi-unit franchise model is another compelling reason to consider this approach. In business, risks are inevitable, whether they stem from economic downturns, local competition, or unexpected operational challenges. As a multi-unit franchisee, you have the distinct advantage of being able to balance these risks more effectively. If one franchise location faces challenges, the success of other units can help absorb or mitigate that impact. This geographical spread across different areas or neighborhoods also means exposure to various local economies and markets, further evening out the risks compared to being a single-unit franchisee. By not putting all your eggs in one basket, you achieve a safer investment profile that can protect and sustain your overall business venture through fluctuating market conditions.
Advantage: An Economy of Scale
Multi-unit ownership enables you to lower your cost per unit because fixed costs are shared over multiple franchise locations. These economies of scale can apply to operational costs such as purchasing inventory, marketing expenditures, staffing, management software, and training, making the business more profitable and efficient over time. This is especially true in low-margin industries.
Advantage: Potential for Higher ROI
Given cost savings, reduced expenses, benefits of economies of scale, and a higher probability of success, multi-unit franchise ownership can generate a higher Return on Investment (ROI). This is something single-unit franchisees will have trouble achieving as it requires a back-of-the-house operation that most of them can provide.
Advantage: Increased Influence
Typically, your influence within the franchise system will grow when you own multiple units. The franchisor is more likely to take notice of your feedback and needs.
Types of Multi-Unit Franchise Agreements
The how and why a business owner can enter the world of multi-franchise ownership typically come in the form of two different franchise agreements: Area developer agreements and area representative agreements. While they lead to similar outcomes and responsibilities within the franchise concept of multi-unit ownership, the ultimate goals are different.
Area Developer Agreement
An Area Development, or Developer, Agreement is a type of multi-unit franchise arrangement in which a franchisee commits to opening and operating a specified number of franchise units within a predetermined geographic area over a set period. This agreement provides franchisees with the exclusive right to develop the brand in their designated area, offering a strategic advantage by securing market presence before competitors can enter. With this agreement, the franchisee uses centralized management and is directly responsible for financing, constructing, and managing each location, adhering to the franchisor’s standards and guidelines. The franchisor supports the franchisee in this endeavor by offering comprehensive training, operational support, and marketing programs. This arrangement allows franchisees to leverage economies of scale and streamline operations across multiple units, ultimately leading to greater profitability.
Area Representative Agreement
An Area Representative Agreement grants an individual or entity the right to recruit and support additional franchisees in a defined territory on behalf of the franchisor. Unlike an area development agreement, where the focus is on opening and managing new franchised outlets or units, area representatives act more like sub-franchisors. Their responsibilities include selling franchises, assisting new franchisees in establishing their units (site selection and guidance with real estate costs, supply chains, etc.), and providing ongoing support. In return, the area representative typically earns a portion of the initial franchise fees and ongoing royalty fees paid by franchisees in their territory. This arrangement benefits the franchisor by expanding its reach and leveraging local knowledge and resources without directly managing additional units. At the same time, it empowers the area representative to build a network of franchisees while sharing in the economic rewards.
Differences from Multi-Brand Franchising
While area development and area representative franchise agreements focus on expanding a single brand within a specific geographic territory, multi-brand franchisees operate multiple franchise brands, sometimes even across different industries. These situations are not a formalized agreement with any one franchise brand, but rather a strategic bet from the part of a franchisee to dip their toes into more than one brand.
Multi-brand franchising offers portfolio diversity by acquiring franchises from various franchisors, which can minimize risk and maximize opportunities. In contrast, area development and area representative agreements concentrate growth within one brand, offering a focused and unified strategy for market penetration. These owners essentially are single-unit franchisees for each of the brands they’ve invested in, although they might also own multiple franchise locations of each brand.
Multi-brand franchisees must navigate the complexities of managing diverse operational requirements, corporate cultures, and brand standards, whereas area development and area representative agreements streamline processes within a singular brand framework, allowing for deeper brand loyalty and expertise. Both approaches have unique advantages and challenges, depending on the franchisee’s goals and resources.
Characteristics of Successful Multi-Unit Franchisees
In the dynamic franchising world, successful multi-unit franchisees stand out thanks to a unique blend of skills, strategies, and a growth-oriented mindset. These franchise professionals understand that multi-franchise ownership is about more than just operating multiple locations—it’s about building a thriving business network and leveraging every opportunity for expansion.
Recognizing Synergy Opportunities
One of the defining traits of top multi-unit franchisees is their ability to pinpoint potential connections between different brands and units. By recognizing synergies, they can streamline operations, share resources, and create efficiencies that drive business growth. Strategic thinking is essential, as these franchisees must determine the best locations for new units, manage costs across their portfolio, and develop marketing strategies that resonate with diverse communities.
Networking for Business Opportunities
Networking is another cornerstone of success. Multi-unit franchisees actively participate in annual gatherings, industry conferences, and breakout sessions, where they connect with fellow attendees, industry leaders, local vendors, and franchisors. These events offer invaluable networking opportunities to share insights, discover new franchise opportunities, and learn best practices from keynote speakers and experienced franchise professionals. By staying engaged—whether through event tweets, exhibitor information, or favorite sessions accessed on devices and computers—multi-unit franchisees ensure they are always at the forefront of any franchise industry trends.
Excellence in Day-to-Day Operations
Operational excellence is also critical. Successful multi-unit franchisees are adept at managing teams across multiple locations, communicating effectively, and utilizing digital tools to monitor performance and streamline processes. They invest in staffing resources and training programs to empower their staff, ensuring brand loyalty and that each unit operates efficiently and maintains high standards. By browsing franchise opportunities and evaluating new brands, they continually seek ways to expand and diversify their business.
In recent years, the appeal of becoming a multi-unit franchisee has grown, attracting both new users and seasoned entrepreneurs eager to join the ranks of successful multi brand franchisees. Attending conferences and engaging with the franchising community allows them to create meetings, participate in breakout sessions, and build relationships that support their long-term goals.
Ultimately, the most successful multi-unit franchisees are those who combine strategic vision, expertise in business operations, and a commitment to continuous learning. By embracing these characteristics, franchisees can achieve a sustainable growth rate, expand their influence, and become leaders in the ever-evolving franchising world.
Thinking about multi unit franchise ownership?
Keep in mind that a bigger initial investment means more risk early on, although it will eventually be spread out among multiple locations. And while multi-unit ownership can ultimately be more profitable, it can involve a longer ramp-up period and a comprehensive business plan. There are different ways to go about multi-unit ownership. If you commit to opening multiple units right out of the gate, be sure to carefully consider the financial investment and time commitment required.
Both single and multi-unit franchising offer opportunities, challenges, and rewards to those willing to commit the time and effort to be successful. Is multi-unit franchising for you? Deciding which path suits you best ultimately comes down to assessing your personal goals and capabilities, finding the right franchise, and making an informed decision.
To find your best match, contact a FranChoice consultant to assist you through the process.