Multi-Unit Franchises
“If it would be more painful for you to lose out on market share than to realize you over-invested, you should seriously explore the benefits of owning a multi-unit franchise.”
Some franchise investors fear risking too much – and others fear not risking enough. For investors considering a multi-unit franchise opportunity, your tolerance for either scenario is a good indicator of whether it’s a good investment match.
Multi-unit franchises are a popular investment option for their scalability and income potential. However, you should not evaluate the multi-unit franchise investment without an understanding of its counterpart model, single-unit franchises. For the latter, a franchisee is responsible for running a single unit within a franchise organization. The investor purchases rights to the unit within a market, and those rights protect the franchisee’s market share for a determined geographic radius. While the single-unit franchisee can opt to expand in the future if territory is open, there is no guarantee that another savvy investor won’t have purchased rights to surrounding territories in the meantime.
Many franchisees have income and equity goals that require more than one unit or a larger territory. For these individuals, a multi-unit franchise can make great business sense. This agreement typically details how many units are to be built out over a defined period of time. The investor pays an initial lump sum for rights to multiple territories, but at a discounted price for investing in “bulk.” In this type of operation, the franchisee is often less involved in the day-to-day operations of a given unit. Instead, the franchisee manages all the locations at a higher level. Usually the franchisee will hire managers and staff for each location to perform the daily operations.
Certainly, opening a single unit does not require as much risk, but it also doesn’t offer as great a reward. Multi-unit investors can realize tremendous ROI because of their economies of scale and the ability to apply repeatable processes and best practices across many, nearly identical operations. That scale also brings with it a stronger, more productive relationship with the franchisor in many instances. One measure of the health of a franchise organization is the presence of many many multi-unit franchise owners in their system.
Indeed, a multi-unit franchise agreement demands more from the investor upfront, both in capital and long-term vision. But it can be perfectly suited for the franchisee who believes in his or her ability to make good on a well-laid plan, and is willing to put their money on the line to ensure its success.