Have you ever wondered what the differences are for owning or investing in a single unit vs. a multiple unit franchise?
In the world of franchising, there are two primary kinds of franchise ownership: being a single unit or a multi-unit franchise investor. While these options may not seem that different from the outside, there are some significant considerations to keep in mind between the two. Here’s what you need to know about the difference and which is best for you.
A Brief History of Franchising
For years, single-unit franchises have been the most popular method of franchising. And for a good reason: most people looking to buy a franchise were either couples or individuals, who wanted an independent business. These people would invest in one franchise location and run it for the better part of their life.
In recent franchising history, however, the multi-unit franchise has become popular, as well. In many ways, multi-unit franchises offer the same perks and benefits of single-unit franchises, but at scale. Since the financial market downturn back in 2008, multi-unit franchises have gained volume, influence, and power. In many cases, multi-unit franchises are the ideal option for stability focused companies who want to grow and maintain their wealth.
Additionally, as multi-unit franchises have become more popular, they have become more sophisticated and widespread. Today, it’s common for companies to offer multi-unit franchise operations. Still, the single unit franchise remains the standard of the franchise industry.
How do Single Unit Franchises Work?
When you think about a franchise, either in the restaurant or fitness space, you probably think of a typical single-unit franchise. In the single unit franchise model, the franchisee invests in one franchise location and does not necessarily intend to open another location at a later date.
Again, this model is popular among couples and individuals who want to create a small, family-run business. This model has been popular, historically, because it is accessible and does not require a massive amount of resources to facilitate. In these cases, the single unit franchisee is typically the primary manager of the business. In some cases, the franchisee may hire an additional manager or principal to help run the location, but this is not incredibly common.
The owner-operator of a single unit franchise, by definition, is the person who runs the day-to-day operations of the company. Their only job is to run the brand. This hands-on approach is beneficial in the sense that it breeds greater familiarity with the company, its challenges, and its employees. If a franchisee chooses to hire an absentee owner, however, that person will not be in the store every day. Generally, this absentee owner has other business interests and typically runs multiple franchises. Instead of working in the business every day, these absentee owners spend their time working on the company.
Typically, single-unit franchises have protected territories for their units. This means that the franchise owner is limited with the opportunity to open a second location (be it a franchise or corporate location) within that protected area. As a general rule, these protected areas take the form of city limits, territories, or geographic barriers. Far from being restrictive, these protected territories offered a safe zone for franchise operators to run their businesses and grow their units.
To help ensure the franchise’s success, the protected territories offered a variety of overarching policies. For example, they may spell out a specific time frame for exclusivity, or prohibit the sale of branded products in third-party stores. In recent years, the single unit franchise has started to pivot away from protected territories. Instead, the model today is that the franchisee’s territory is limited to their unit. This helps protect the brand and ensure that locations do not open so close to one another that they create a sort of cannibalization.
What is a Multi-Unit Franchise?
In recent years, the multi-unit franchise has become more popular. With a multi-unit franchise a franchise owner owns and runs more than one unit. Traditionally, these multiple units are in the same general region. While the multi-unit franchise model may seem complicated, proponents believe that it offers a greater chance for expansion and proliferation for interested franchise owners.
To help streamline the operation of multi-unit franchises, most operators utilize a document like an Area Developer Agreement. This agreement specifies how many units the franchisee can open, over what period, and in which specific territory. As a holdover from the single-unit franchise days, most of these territories are protected. Additionally, there is an Individual Franchise Agreement that the franchise owner and the company sign for each unit that opens in a given region.
Like single-unit franchises, most multi-unit franchise owners are either couples or individuals. In some cases, however, the owner of a multi-unit franchise can be a corporation. Many of these corporations have a variety of franchise companies under their portfolio umbrellas and can support and operate many locations under a single franchisor.
While running a multi-unit franchise requires a much higher upfront investment, it also provides a higher earning potential and enhanced stability down the road. The reason for this is simple: the franchise owner is not relying on one single location. Instead, they have the benefit of multiple units and various locations to ensure success.
Which one is Right for you?
Today, both single and multi-unit franchises are important, and both have their place within the industry. However, as the face of franchising continues to change, and franchise owners began looking for more consistently profitable options for their companies, multi-unit franchising is becoming more and more popular.
One of the most significant deciding factors for most couples and individuals is the initial start-up cost. If you have the capital to invest in a multi-unit franchise operation, it might be a good choice for you and your family. However, if your resources are a bit more limited, a single unit franchise will still offer excellent growth potential and an attractive business for your family.
Here at Alloy, we specialize in helping people build a business to be proud of owning. To learn more about the Alloy Personal Training Franchise model, or to request your free information packet, contact us!