While owning one franchise may make all your entrepreneurial dreams come true, there are other options for those with a desire to expand on their success.
Here are the four major types of franchise ownership, each with its own set of legal obligations to the franchisor.
Single-Unit Franchise
Granted the right to operate one location, the oldest and most common type of franchise relationship is the single-unit franchise where, quite often, the owner is the operator of what’s been dubbed a “mom and pop” franchise. Until recently, this was the most common type of
franchise relationship.
Multi-Unit Franchise
It’s estimated that more than 50-percent of franchised locations now are owned by people that have more than one location. These people are known as multi-unit franchisees. They purchase the right to own and develop multiple units in an exclusive territory and usually rely on general
managers and staff to oversee the individual stores, while they themselves initially act as more of a “regional manager”.
Multiple units are generally sold at a reduced rate per unit, when awarded at the onset. While the initial investment is higher than opening a single-unit franchise, the risk is lower because operating more units usually allows the franchisee the opportunity to scale the business and capitalize on the efforts to scale the brand – not duplicating services like HR management, accounting oversight, etc.
Area Developers
Similar to multi-unit franchisees, area developers have an agreement to develop a certain amount of franchise units but they also can elect to “sub-franchise”. This approach is best for franchisees who are looking for market exclusivity and have the resources to secure that exclusivity with the
franchisor.
Keep in mind that these franchise offerings seem rare since most franchisors don’t offer them once they have achieved a sustainable mass, and they’re usually offered BEFORE the brand name is recognized. When they are available, they typically are awarded very quickly, to those
“in the know” about franchising and the potential to scale within this model. Flexibility is great at this level, so is potential income – but can be considered risky, as the brand usually isn’t a household name, yet.
Master Franchise
Like a multi-unit franchisee, or area developer, the master franchisee must also open a certain number of franchises in a specific time period and area. Master franchising, however, is normally reserved for a very large geographic area such as an entire state or sometimes country, for international growth. Many U.S. franchises use master franchising as a means of international expansion. Non US brands, will also launch in the US with a master, too.
If you’d like to discuss any of these options, give me a call. And remember, you’re only limited by what you think you can’t do.