Why Franchisors Want Multi-Unit Franchisees
May 28, 2024
Since the beginning of the franchising boom, with big brands becoming public, a franchise key indicator was annual unit growth. That meant mostly single-unit franchisees because that was the typical way to grow back then.
But now, franchises report also on the percentage of units opened by existing franchisees, because this indicator proves three critical things:
- They have good operators.
- Their franchise network trusts them.
- The brand is successful enough to have investors willing to open more units.
These virtues make the franchise more attractive to new investors or franchisees.
Something else that changed is that, in recent years, franchisors have focused their growth on the development of multi-unit franchisees. They do that either by seeking new franchisees to sign multi-area agreements or by pushing their existing successful franchisees to open more units or acquire units that are underperforming.
In this blog post, we’ll review the reasons this multi-unit growth is now the goal for most franchise brands.
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Aside from startup or emerging franchises that focus on single-unit sales, most franchise growth comes from existing franchisees that are acquiring more units so they can go into multi-unit. Let's go over some of the reasons why franchisors choose the multi-unit model to expand their business.
- Current successful franchisees. Brands motivate their already successful franchises to go multi-unit because they have proven themselves with the brand, and past behavior or result is a very good predictor of future behavior and results. That way, their risk goes down.
- Achieve better and more consistent brand execution. Existing franchisees already know the brand and the standards, and they have a good track record of properly implementing their systems as they're supposed to. Franchise owners like that, and that's why they like existing franchisees that are successful, going multi-unit.
- Culture match. Franchisors know and trust their top-performing franchisees and they can tell if these leaders share their values and passion for the brand. This reduces a lot of franchisor-franchisee conflicts and makes the business relationship a lot easier and better. Having new franchisees on board, on the other hand, could be tricky, especially not knowing if they're as passionate enough and if they align with the brand’s values.
- Less training and support. Existing franchisors are already trained and have even developed their business management systems, which are consistent and successful. Furthermore, the bigger these franchisees become in the multi-unit enterprise, the less support they need.
- Fewer issues. If existing successful franchisees become multi-unit, the problems are minimal. There's better communication, they know how things work, and they are already engaged with the business and the brand, so they are committed to making the franchise a success.
- Lower cost. The franchisor has what we call FBCs, Franchise Business Consultants, whose job is to support the franchisees to make sure things are being implemented the right way. This consultants are assigned by franchisee, not by unit. So having more multi-unit franchisees implies that franchisors won’t need as many FBCs as in a single-unit franchise organization.
- Less risk. Having a proven relationship, proven operators, and a proven business means there is less risk for the franchisor giving additional units.
- Access to capital. Having multi-unit franchisees simplifies financing for franchise owners since it’s easier for banks to provide capital to a business that has been proven to be successful in the long run.
Must read: Access Capital with No Personal Guarantees. This is How
Why should this matter to you?
As you can see, there are lots of reasons why franchise owners want multi-unit franchisees in their organization. But, why should this matter?
As I have explained in other blog posts, having one unit is a job while being multi-unit means operating an enterprise, which is what can truly offer time and financial freedom for you as a franchisee.
Think of the average franchise that generates $500,000 in sales and a net profit of 10% before taxes and any loan payment. A franchisee takes, per unit, about 5% of net sales. So in such a business, annually you would take around $25,000 in profitability.
If you add a manager's salary, which is anywhere between $40,000 to $50,000, one franchise can give you about $75,000 a year. That amount replaces the salary of an average job, but that’s not going to give you financial freedom. Not even time freedom because if you are the manager, you're running the business.
However, if you turn into a multi-unit enterprise, the $25,000 profit per unit will escalate. If you have two units, you’ll double the amount. If you have three units, you’ll triple that number. With four units, you’ll quadruple the average profit. And you put managers in place so you don’t run the business yourself.
Don’t miss: 11 Benefits of Scaling to a Multi-Unit Franchise
This is also important because franchise owners want to make it easier for you to acquire a development area. You can grow your organization either by opening new locations within the area, ideally near where your existing store is, or acquiring underperforming units or those from franchisees who want to retire.
Think about it! Franchising had a big boom in the 80s and early 90s, and those men and women who acquired the brands 30 or 40 years ago are aging and some may want to sell, especially if their children do not want the business.
- This opens an opportunity to buy those units or obtain those areas of agreement.
Another thing to consider is that multi-unit enterprises have better retention rates of their employees because you’ll be able to offer those team members the opportunity for growth which improves retention.
So basically, the key benefits of multi-unit growth are:
- The more units you have, the easier it is to manage them because you have a manager in each unit.
- Since people have opportunities for growth, they're less likely to leave.
- And the more units you have, the more money you make.
These benefits will help you achieve your goals of time and financial freedom.
I know you may be concerned about what's going to happen when you grow into a multi-unit franchisee because it is not the same thing to have one unit as it is to run multiple stores. But don't worry too much about that!
You can follow the American Franchise Academy on our YouTube channel and podcast where we share a lot of information for you to successfully manage a multi-unit organization.
And, if you want to learn more knowledge, explore our best-in-class programs, designed to support you as a multi-unit franchisee, as well as your unit managers, and your district managers.
Reach out to us to learn how we can help you achieve your dream of business ownership through franchising into a multi-unit enterprise so that you can achieve that time and financial freedom.
Reflections:
- Are you ready to become a multi-unit franchisee?
- How would you like to grow: opening brand new units, saving underperforming stores, or buying from franchise veterans?
- How much do you match with the brand’s culture, values, and passion?
- What is stopping you from growing into a multi-unit enterprise?
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