Historically, there were two types of franchisees: single unit and multi-unit. Single-Unit Franchisees have long been the foundation of franchising. Individuals, or often a couple looking to own their own business, would invest their life savings into a single franchise unit. But Multi-Unit Franchisees have gained popularity. So, should you be a single or multi-unit franchise owner?
Of the two types of franchisees, the Single-Unit Franchisee is the norm. A franchisee will buy a single unit with no expectation of opening more. This is a typical example of a husband and wife leaving Corporate America to run their own business. They usually invest their life savings, which can be substantial, but their resources are limited. The franchisor and franchisee sign only one Franchise Agreement. The Single-Unit Franchisee is frequently the main operator. A Single-Unit Franchisee may hire an operating principal to run their location.
Almost any new or emerging Franchisor (i.e., a brand with few or no existing corporate locations) will start with a Single-Unit Franchisee. Most Multi-Unit Franchisees want to see how an Emerging Franchisor operates before investing. An emerging franchisor lacks such history and experience.
The exclusive or protected territories for single-unit franchisees were common historically. As a result, the franchisor was restricted from opening a new location, corporate or franchised, within the protected territory. Many of these boundaries were defined by zip codes, population levels, or geography. Exclusive territory means that only one franchisee’s unit could be open within that territory.
The Multi-Unit Franchisee has grown in popularity, frequency, and influence over the last few decades. Typically, one franchisee owns and operates multiple units in the same region.
An Area Developer Agreement specifies the number of units, period, and specific territory that a Multi-Unit Franchisee will open. In most cases, this territory is protected unless the franchisee violates his agreements. Each new unit requires a separate Franchise Agreement between the franchisor and the franchisee. The Area Developer Agreement typically specifies when each unit must be opened. If the franchisee does not follow the schedule, they risk losing their rights to open new locations.
A Multi-Unit Franchisee, like a Single-Unit Franchisee, can be an individual or a couple, but more often than not, it is a corporation. Many of these businesses have multiple franchise brands and a back office that can efficiently run more than hundreds of locations under one franchisor. These businesses typically only invest in well-established franchise systems.
While a Multi-Unit Franchisee requires a higher initial investment, it also provides greater stability and success. They are not dependent on one location. Multi-Unit Franchisees are frequently offered reduced fees and royalty breaks by franchisors to entice them to invest more money.
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