Alloy Founder and CEO, Rick Mayo, discusses why multi-unit franchising is popular and the secret to franchise business success.
If you’ve spent any time in the franchise world, you know that the multi-unit franchising model is becoming increasingly popular. But what is a multi-unit franchise? And what does running one actually entail?
In this blog, we’ll break down the things you need to know about multi-unit franchising, and how to decide whether it’s right for you. Let’s dive in.
A Brief History of the Franchise Model
The franchise model, at its heart, was created with multi-unit franchises in mind. Under the original franchise model, business owners could become “franchisors” to several investors (“franchisees”), each of whom would run a branch of the same company. This foundational model stands to allow franchisors to relieve themselves of the daily tasks of running a business, while still maintaining control over the company and brand at large.
The franchising model works because it provides a formula for operating a successful business by delivering a uniform product and service to customers. It provides franchisors with the capital they need, creates distribution channels, and gives consumers a recognized standard of what to expect and a higher perceived value. Done right, it’s a model that benefits business owners, operators, and customers alike.
As the world of franchising has continued to evolve over the last decade, more franchisees have capitalized on the original business model by opening and running more than a single business unit. Enter the world of multi-unit franchises. No longer content to operate a single standalone franchise unit, many savvy and aggressive franchisees have opened up several units. About 53% of all franchised locations in the United States are controlled by multi-unit operators.
What is a Multi-Unit Franchise?
Multi-unit franchises have many of the same characteristics as a single-unit franchise, except that they operate several unique outlets in a given area. Investors who want to run a multi-unit franchise will pay higher initial and ongoing costs than a single-unit franchise owner, but they also stand to enjoy higher profit margins and a larger earning potential.
Since it can be difficult for a single business owner to stay hands-on at each of their disparate locations, many choose to hire unit managers to oversee the daily operations at each franchise location. The owner will oversee their network of franchises and report back to the franchisor at large.
Single Unit vs. Multi-Unit Franchises
For most people, single-unit franchises are the most familiar franchising model. Under this model, single-unit franchises require an investor to pay a set fee to access the training and business support of the franchise parent company. In exchange, the franchisee signs a contract promising to adhere to the company’s brand guidelines and business development requirements.
Business owners who choose to franchise generally do so because opening a franchise offers the opportunity for brand recognition, proven systems, and an established base of trusting customers. The franchise model is popular among both experienced entrepreneurs and new business owners alike, as the model provides more support than an independent business would.
While single-unit and multi-unit franchise models share many similarities, investors will pay a smaller upfront cost for a single-unit franchise than they will for a multi-unit operation. Multi-unit Alloy franchisees will usually pay a set amount for each unit over 1 in return for a specific territory and development exclusivity.
The principle of multi-unit franchising is that the more businesses you own, the more potential there is for more customers, higher sales, economies of scale in operations, and ability to generate a higher profit.
Advantages and Disadvantages of Multi Unit Franchises (Pros and Cons)
You opened one franchise operation, and you’re pleased with the way the business has taken off. The business is going well and your relationship with your franchisor is excellent. Now you’re considering opening another location, but you will want to do your due diligence first.
Here are a few pros and cons to consider before you take the leap.
Pros of Multi-Unit Franchising
- Larger growth potential. More businesses mean more customers, which means a larger sales potential for you. The more sales you make, the more income you stand to net annually.
- More equity. Besides increasing your sales potential, it’s easier to build equity in your business as a multi-unit franchisee than it is as a single-unit franchisee. As your sales volume increases, you’ll be able to negotiate better prices for supplies you need to run your business, and even get discounts from landlords and property managers. Finally, multi-unit franchisors may also gain more favorable financing options.
- Easier marketing. The more franchises you own, the easier marketing those franchises is going to be. In addition to having access to a larger marketing budget, regional costs will lower as you start to consider them on a per-unit and per-customer basis.
- More advancement opportunities for employees. A larger organization offers a variety of advancement opportunities for employees. A multi-unit franchise may qualify for lower-cost health-insurance plans, or offer better benefit packages, for example. Additionally, multi-unit franchises may offer more lateral movement or employment flexibility for key team members.
- More influence in your market. When you run a multi-unit franchise operation, you’ll have more influence over your parent company. This translates to more control over costs and greater economic power in your parent company.
- Economies of Scale. Economies of scale are cost reductions that occur when companies increase sales or production. Multi–unit ownership enables you to lower your cost per unit because fixed costs are shared over multiple locations.
The Cons of Multi-Unit Franchising
- Greater risk. More units mean more risk. The more individual companies you operate, the more likely it is that something will go wrong regarding performance. Also, poor performance at one location translates to poor performance at all your franchises.
- More difficulty. Being an effective multi-unit operator requires great management and organization skills. If you don’t have these, developing them in a multi-unit capacity can feel like a trial by fire. To scale successfully, you’ll need a reasonable plan you can easily follow, as well as some great leadership skills. As such, multi-unit franchising is most popular with experienced franchisees.
- Greater expenses. Starting a multi-unit franchise requires a greater upfront investment. If you’re new to the pursuit, it’s important to take inventory of your available capital and your ability to realistically add units and scale the business. If you bite off more than you can chew at the outset, it can be difficult to recover financially down the line.
Is Multi-Unit Franchising Right for You?
While multi-unit franchising can be an excellent approach for experienced business owners, it presents more challenges than single-unit franchising. With that in mind, it’s important to take a cautious approach to the pursuit, and ensure that you have the skills, capital, and bandwidth necessary to take the leap. That said, if all the elements are in place, running a multi-unit franchise is an excellent way to build your business, increase your income potential, and develop your legacy.
Here at Alloy Franchise, we pride ourselves on helping franchisees like you build multi-unit dynasties. Contact us today to learn more about our available franchise opportunities or request your free information packet.
Article by: Rick Mayo
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