A potential franchisee has the opportunity to choose a single unit or multi-unit franchise depending on the experience of the franchisee and also the amount of investment that is available. What are the differences between these two types of franchising?
Single Unit FranchisesSingle unit franchising is the most likely place a brand new entrepreneur would begin. In this type of franchise, the franchisee would only be responsible for running one unit. However he or she would be extremely involved with all of the daily operations of the business.
The franchisee typically has a particular territory that is covered by the unit. Usually the franchisor assigns a number of miles to be covered by each unit in operation. If the business is home-based, there may be four or five zip codes included.
With a single unit franchise, the investment costs are less than opening up multiple units. Although most single unit franchises yield a nice income, there is more earning potential with multi-unit franchises.
Multi-Unit FranchisesMulti-unit franchising creates the opportunity for the franchisee to open more than one unit. In this case, multiple units are usually sold at a reduced rate per unit.
In this type of operation, the franchisee partakes less in the day-to-day operations of the 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.
This type of franchising is not typically limited to a particular area. Therefore, the franchisee may have several units located in different parts of a town, or even in other states.
Although the initial total investment is higher than opening a single unit, the risk is typically lower for the franchisee. Owning more units increases the overall probability of success. Also, the multi-unit franchisee is likely to have more input with the franchisor, creating a win-win situation on both sides.
Types of Multi-Unit FranchisesThere are basically two types of multi-unit franchises available. One is known as area development, in which the franchisee is obligated to open a specified number of outlets within a particular timeframe. The other type is identified as sequential multi-unit franchising, in which the franchisor awards the franchisee with the right to open additional units; each under a separate contract. With the latter, the expansion takes place as the market and earnings allow.
In summary, multi-unit franchising is usually an option for someone that has had experience in operating a business or a single unit franchise in the past. Also, the franchisee may be considered more of an investor at this level.