What Are the Advantages of Multi-Unit Franchising?
If you are reading this article, you are likely already aware of the advantages of franchising. While owning a single franchise can be beneficial, owning multiple franchises as a multi-unit franchise operator provides additional advantages that single-unit franchisees do not have access to.
Whether you are an existing franchise owner seeking to grow your business or a prospective franchisee interested in starting with multiple units, this article will explore the advantages of multi-unit franchising and why it might be the right choice for you. However, before delving into the benefits, let’s first define what multi-unit franchising is and examine its prevalence in the US.
As the name implies, multi-unit franchising refers to a franchisee who has invested in multiple franchise units, typically within an authorized geographic area or territory. The primary distinction between a single-unit franchisee and a multi-unit franchisee, aside from the number of locations, is the level of involvement. Single-unit franchisees tend to be more hands-on with their location and may need to invest more time in running it, particularly in the early stages.
Conversely, a multi-unit franchisee cannot be as extensively involved in each location due to time constraints and the inability to be in multiple places simultaneously. Nevertheless, owning multiple franchise units doesn’t absolve one of responsibilities, but it does require franchise owners to rely more on management teams to oversee each location. As a result, multi-unit franchising may be more appealing to those seeking semi-absentee ownership.
When a franchisee decides to invest in multiple franchise units, they will typically be granted an Area Developer Agreement, also known as a Multi-Unit Development Agreement. This agreement specifies the number of units the franchisee is required to establish within a particular territory and within a specified time frame. By signing this agreement, the franchisee is ensured exclusive rights to that specific territory, which means that no other franchise owners can open a location within that area. Essentially, the Area Developer Agreement establishes how many franchise locations a franchisee will establish over a set period of time and within a particular area. Failure to comply with this agreement may result in the franchisee being prohibited from opening additional locations.
According to FRANdata, more than 43,212 multi-unit franchisees control over 223,213 franchised units in the US, representing 54% of all franchised units. The US has witnessed a significant increase in multi-unit franchising, with approximately 23% growth from 2010 to 2018 in franchisees owning two to five units. Additionally, multi-unit franchisees owning six to ten units experienced nearly 34% growth during the same period, with the percentage increasing as the number of units owned goes up.
It is clear that multi-unit franchising has become increasingly popular, and here are some reasons why.
Greater Chance of Success and Revenue
Consider a scenario where a franchisee signs a franchise agreement for a business that offers various revenue channels. Although there are numerous benefits to this approach, one of the most significant is that the franchisee has the chance to earn profits through different channels. Even if one revenue stream performs poorly for a specific period, there are several others that can compensate for it. When applied to multi-unit franchising, this means that franchisees can operate multiple franchise locations with multiple revenue streams, allowing them to build on their success as they expand.
For example, if one location is primarily known for a particular service, and another location is known for other services, this can be due to the location’s demographics or other factors. As a result, multi-unit franchisees have the opportunity to generate revenue across all services offered at all locations, creating a more stable and diversified income stream. This type of geographic diversification can be especially attractive to franchisees who currently operate a single unit.
Multi-unit franchising provides a greater potential for income, which can lead to more stability for franchise owners. In times of global economic instability, such as a recession, owning multiple franchises increases the chance of maintaining a steady cash flow. By replicating successful techniques developed in previous units, franchise owners can apply them to new locations and improve their chances of success.
Multi-unit franchising exposes you to a larger audience, leading to a broader customer base and increased sales. For those looking to expand from a single-unit franchise, investing in multiple units allows for the development of expertise. With experience gained from previous units, opening subsequent locations becomes more manageable.
Investing in multiple units from the beginning can be advantageous for those who want to expand their franchise ownership. The experience gained from running a single-unit franchise can be applied to subsequent locations, making the process easier. Since all locations operate on the same proven business plan, the familiarity with the inner workings of running a franchise is useful and can be applied across locations without much complication.
More Opportunities to Save
The initial investment required to obtain multiple units may seem daunting, but franchisors often offer a discounted percentage on the investment for franchisees who purchase multiple units. While this is still a significant investment, the potential for savings comes with the increased revenue from multiple locations once they are up and running.
Multi-unit franchisees have the advantage of negotiating lower costs from vendors and suppliers due to their ability to purchase inventory or equipment in bulk. This can result in significant savings. Furthermore, multi-unit franchisees can benefit from economies of scale, which can lead to reduced overhead expenses for each franchise location. This can include shared administrative and operational costs such as rent, utilities, and personnel expenses. Additionally, marketing expenses can be reduced, especially if multiple units are in close proximity, as marketing efforts for one location can benefit other units as well.
Multi-unit franchisees can also save on staffing and training costs, especially if their units are located in the same geographic area. With the ability to pre-train and pre-purchase necessary materials, multi-unit operators can open new locations more quickly. Instead of hiring a new team for each location, some franchisors may transfer staff from existing locations or rotate them between locations. This can reduce the need to hire new employees, resulting in lower staffing costs. Additionally, many multi-unit operators experience higher employee retention rates, as there are more opportunities for career growth within a multi-unit network compared to a single location.
Multi-unit franchisees can enjoy higher ROI due to the increased probability of success from operating multiple locations and the savings achieved through economies of scale. With reduced overhead expenses, lower costs from suppliers and vendors, and savings on staffing and training, franchisees can maximize their profits across all locations. Additionally, multi-unit operators are able to pre-train and purchase needed materials for multiple locations, which helps to open new locations faster and save on expenses. All these factors contribute to the potential for a higher ROI.
Greater Work-Life Balance
As previously mentioned, managing multiple franchise locations can be challenging for a franchisee who wants to be directly involved in each location. Therefore, those who are interested in a semi-absentee or fully absentee ownership model may find investing in multiple units upfront to be a good option. Alternatively, franchisees who have successfully operated a single location may want to transition to a less hands-on role. In both cases, owning multiple franchise units can lead to a better work-life balance.
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