Single Unit vs. Multi-Unit vs. Area Development
In franchising, depending on the franchisor and their business concept, as a potential franchisee you have choices of being awarded a single unit, a multi-unit or an area to develop. What you choose will depend on what options the franchisor offers, your vision and financial means.
The Single Unit is typically owner/operator run (unless the franchisor allows semi-absentee ownership). This is one territory determined by the franchisor. Usually it is based by zip code and other criteria such as
· population (property management)
· demographics such as overall households (dry cleaning)
· households achieving a certain discretionary income level (residential cleaning)
· a number of the population of a certain age (in-home senior care)
· businesses (staffing/personnel)
· X mile radius (retail food or shipping/packing)
The Multi-Unit encompasses the same principles but on a grander scale. Instead of the franchisee working in their locations as an owner/operator, they employ a unit manager or assistant manager to run one or more locations while they concentrate on overall strategy and growth. The owner benefits from economies of scale advantages for marketing, budgeting, training, purchasing, etc. With some industries/brands, a potential franchisee may need to employ the multi-unit strategy to ensure they earn the income they seek. Many franchisors offer reduced franchise fees for additional units when an agreement for 3 or 5 is signed upfront allowing a time schedule to develop each unit
Area development (or Master franchisee) offers the franchisee candidate the opportunity to invest in:
· A set number of franchises; during
· A set period of time; in
· A defined market area
As the multi-unit franchisee, you agree to open 7 locations over the next five years in Maricopa County, Arizona. Usually, you will pay a non-refundable development fee for the area as well as the first unit franchise fees. As each of the additional franchise agreements is signed, the area developer or sub-franchisee will pay the agreed upon multi-unit fee to the franchisor.
AREA DEVELOPMENT ADVANTAGES
· 𝐀𝐫𝐞𝐚 𝐄𝐱𝐜𝐥𝐮𝐬𝐢𝐯𝐢𝐭𝐲 – The Area Developer benefits by gaining the exclusive rights to the area to fulfill their agreement.
· 𝐅𝐥𝐞𝐱𝐢𝐛𝐥𝐞 𝐄𝐱𝐩𝐚𝐧𝐬𝐢𝐨𝐧 𝐎𝐩𝐭𝐢𝐨𝐧𝐬 – Generally the Area Developer first builds a flagship location and then can either expand by opening further locations themselves or sell franchises to others as sub-franchisees who benefit from their experience, support and training.
· 𝐅𝐫𝐚𝐧𝐜𝐡𝐢𝐬𝐞 𝐅𝐞𝐞 𝐑𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧𝐬 – Typically, since the Area Developer is also a multi-unit developer, there is franchise fee reduction for additional unit which is sometimes tiered to reward more units acquired.
· 𝐒𝐡𝐚𝐫𝐞 𝐢𝐧 𝐅𝐫𝐚𝐧𝐜𝐡𝐢𝐬𝐞 𝐚𝐧𝐝 𝐑𝐨𝐲𝐚𝐥𝐭𝐲 𝐅𝐞𝐞𝐬 – For the Area Developer investing in an area which will grow via recruitment of sub-franchisees, the Franchisor and Area Developer generally share a percentage of the franchise fee and ongoing royalties.