While signing any development deal is an exciting step in launching your franchise opportunity, a key to rapid growth is signing multi-unit deals. It is valuable to have a variety of deal sizes, ranging from one to 10 or more locations, but having a majority of multi-unit deals fall into the 3-10 location range can help propel your brand to new heights faster than you imagined.
For Cookie Cutters, our secret ingredient to success has been the amount of multi-unit development deals we sign. Typically, we do not sign deals that are less than three units. Due to this business practice, we’re now the largest children’s hair salon in the competitive space.
When deciding to offer a multi-unit franchise opportunity there are a few things to consider. While it can be the key to success and rapid growth, it can also be part of your failure if you do not prepare accordingly.
Finding the Right Partners
As with anything in franchising, finding the right franchise partners is crucial. For multi-unit deals especially, you have to ensure that the franchisees will uphold their entire agreement and truly become brand advocates utilizing their large foot print. I advise you to find franchise partners who are financially ready and perhaps have business experience, whether in franchising or otherwise. These will be your best partners for those large multi-unit deals.
As a caveat, it is important to source franchise partners who are passionate about the brand, especially for smaller multi-unit deals. We sign many 3-unit deals with new entrepreneurs, families and couples just looking for a new opportunity. They become our best multi-unit franchisees because they are eager, hands-on and truly depend on their own success.
Multi-Unit vs. Area Developer
My wife and I started out as multi-unit franchisees with Cookie Cutters, before becoming area developers and eventually purchasing the franchise from the founders and becoming the CEO and COO. The distinction between multi-unit franchisees and area developers is often murky and that’s because it depends on the specific contract.
Multi-unit franchisees have signed on to open several units, but may not have a specific territory. Area developers have signed on for a territory but may not open units directly. Multi-unit franchisees are hands-on, building the business on the ground. Area developers can serve as an extension of your development team. They are looking for franchisees in their territory to develop it and open units. With area developers you essentially pass on the franchise development responsibilities to them, trusting that they will open the expected units either personally or through franchise sourcing.
To determine if you will offer both development deals or one or the other, look at your expansion targets and progress. Could you benefit from an area developer joining the team? Area developers are often local to that particular territory and can help if you are entering a new market. Do you already have a strong presence in a market but want to add a few more stores? A multi-unit franchisee who is looking for a new opportunity can be the perfect partner to complete a market.
This is also where the right franchise partner fits in. Often a local, experienced and financially-able franchisee will make a strong area developer candidate, while a newer entrepreneur is best suited for multi-unit franchising at the beginning.
Investing in a franchise is a large commitment on its own, but investing in three, five or 10 stores is daunting, and often, unmanageable. If you are set on offering multi-unit or area developer deals, you should offer a few incentives to better position the opportunity to a prospect. There are several ways to offer incentives, which should be determined based on the development deal you are offering.
For starters, it is common for franchisors to lower franchise fees based on the number of units a prospect is signing for. For example, 10 percent off three-unit deals, 25 percent off five-unit deals, etc. You may also consider slashing ad funds or royalties for some time if a franchisee opens five units within a certain time frame, for example.
For area developers, profit sharing or commissions often serve as an incentive. Remember, an area developer is essentially an extension of your development and sales team. You want to incentivize them to go out and develop their territory, signing more deals in the process.
While it is difficult to stomach a few concessions, especially as a start-up, offering incentives for multi-unit territories is beneficial in the long run.
Once you have everything set, it is important to check in on your multi-unit franchisees and area developers to ensure they are hitting their targets in a timely fashion. You may need to adjust development agreements as time goes on or push a little in certain areas. The follow through and progress updates after a deal is signed cannot be overlooked.
Multi-unit franchise deals and area developers are key to a franchise’s success and rapid growth. Yet, with great upside, comes risk. Proceed cautiously and strategically and you will be on your way to becoming the next big thing.
Neal Courtney is the CEO of Cookie Cutters Haircuts for Kids. Prior to becoming CEO of Cookie Cutters, Neal and his wife, Alexis Courtney, were established Cookie Cutters franchisees with five locations. Neal served as the CEO of Famous Brand International, which included Mrs. Field’s Cookies and TCBY, among others.