Multi-unit franchise owners have to take the good with the bad. Here are the challenges and the rewards.
Can you have too much of a good thing when it comes to franchising? People who invest in several units within a given territory (a.k.a. multi-unit franchisors) don’t seem to think so. This type of franchising is on the rise. According to the franchise market research firm FRANdata, multi-unit franchise owners now control 54% of all franchised units in the U.S. today. One immediate benefit to contracting this type of ownership upfront is a discounted franchise fee and guaranteed territory. But there are lots of other factors to consider. Here, we look at the pros and cons of multi-unit franchising.
Pros of multi-unit franchise ownership
Even though each location may be slightly different, each franchise you own as a multi-unit franchise owner is essentially the same and can share resources. For example, if staffing is low at one location, you can send employees from another to help out temporarily.
Increased chance for success
By owning more than one location, multi-unit franchise owners have a greater chance for growth and success. If one unit is weak, the more successful ones can carry the load. Also, once you have one location up and running, you will have first-hand knowledge of what it might take to start up the rest.
Having multiple locations allows multi-unit franchise owners to spread their fixed costs across those locations. This economies of scale theory means that advertising, marketing, inventory buying and training will be more efficient and will lead to greater profits and ROI.
Investing in a franchise allows for support across the board — especially with multiple businesses of the same brand. Instead of starting a business from scratch, multi-unit franchise owners are entering into the same established business several times over. Multi-unit franchise owners always know where to turn for help because they have already learned the ropes.
As a multi-unit franchise owner, you will have more clout and influence with your franchisor and in your community. Successfully owning and operating multiple businesses proves your leadership and managerial skills. Often, franchisors will seek the help of their most experienced and involved franchisees to weigh in on big, system-wide decisions.
Cons of multi-unit franchise ownership
With multiple franchises, you have to be a master delegator. If you’re not good at leading teams or with time management and planning, it may be hard to stay focused and involved in each business. Multi-unit franchise owners have to prioritize and go where they are needed the most.
Longer wait for profitability
Multi-unit franchising may be more profitable and efficient, but because the investment is greater, it may take longer to break even and turn a profit.
Both financially and logistically, it’s important for multi-unit franchise owners to understand what they are getting themselves into. With a multitude of moving parts, the massive responsibility of owning multiple franchises is not for everyone.
More doesn’t always mean better or easier. In multi-unit franchising, it’s imperative to balance risk and reward and fully understand the brand and its business proposition. In any franchise investment, you should do your due diligence, but with multiple units, it’s even more important.
It takes money to make money. In order to successfully own a franchise, you must invest in it. Owning multiple franchises requires even more money. Make sure you understand how much you need in liquid assets to start and run multiple locations.
Before you invest in one, five, or more units of any franchise, make sure you understand the brand, the value proposition, and the business model. After all, if it’s not a good fit in the first place, then bigger will definitely not be better.