Pros & Cons of Becoming a Multi-Unit Franchisee
More and more franchise companies are adapting the multi-unit operator philosophy, and some franchisors seek only multi-unit franchisees as opposed to single unit operators. What’s that all about, and is it good for franchisees?
Think of it this way. If you’re a franchisor with 1,000 operating units, would you prefer to support 1,000 single unit operators, or, 100 multi-unit franchisees with each franchisee operating 10 units? Obviously the answer is less is more! Think of the franchisor’s support staff. If a franchisor needs to employ 20 support staff to support 1,000 franchisees, supporting 100 franchisees might require only two support staff. It’s a huge savings!
But does it make sense for franchisees? Many franchisees think so, and here’s why.
- Earn more money. If you generate $100,000 profit from one unit, 10 units will generate $1-million. It doesn’t work exactly that way because multi-unit operators must hire higher caliber staff. With one unit, the franchisee can serve as manager. With 10 units, the franchisee may need 10 managers, freeing up his or her time to manage the managers. Still, multi-unit operators generally earn more money than do single-unit operators.
- Economies of scale. Greater volume generally means paying less per item. For example, instead of ordering 10,000 cups annually, you’re ordering 100,000 cups annually. You save on price per cup, and you save on other products you purchase in volume as well.
- More bang for the advertising buck. Instead of paying $50,000 a year for radio advertising to market one unit, you’re paying $50,000 to market all 10 units!
- Stronger workforce. Multi-unit operators can afford more effective training programs and they are not hit as hard by turnover. Plus, you can move employees from one unit to another.
- More seasoned operator. After you’ve operated a single unit, you know what to expect in future units. There are fewer surprises for the multi-unit operator, including knowing how to market and manage the units.
- Downturn protection. Markets differ from unit to unit. If you own one unit and you suffer a bad month, you may not be able to make up the losses. But with 10 units, if one has a slow month, chances are another one had its best month. There’s no downturn protection with one unit, but it exists with multiple units.
For these reasons, and others, more and franchisee prospects consider buying franchise opportunities that encourage them (and some require them) to open multiple units.
Before you make the decision to do so, however, there are a few other pointers you should consider:
- Are you ready for the life of a multi-unit franchisee? Operating one unit may mean you have plenty of time for yourself and your family. Operating multiple units may require you to work much longer hours. Plus, working in a unit as an operator is one thing; working as the manager of multiple store managers is quite another thing. Do you have the time and skills to manage multiple stores? And is this what you want to do?
- It’s more expensive to operate multiple units. In the early years, when your cash flow may be scarce, will you have the money, or the borrowing power, to open multiple units? Keep in mind the franchisor will expect you to do so . . . but will you be able to afford it?
- You’re juggling more balls in the air. With multiple units, you’ve got multiple challenges (some would even say headaches). Instead of a staff of 10 you may employ 100 people; instead of dealing with one landlord, you may have 10 landlords; instead of complying with laws and regulations in one municipality, you may have to deal with 10, and so on. If your idea of successful franchising is to work in your own unit and go home at the end of the day, think twice about becoming a multi-unit operator.
- Your risk is greater. You may invest $300,000 in one unit and sleep comfortably at night. Will you sleep as well if you’ve got $3-million invested in the same franchise concept? True, some multi-unit operators also become multi-concept operators, but that requires an entirely new set of pros and cons.
Franchisors in many industries are deciding in favor of multi-unit operators instead of single-unit operators, and with good reasons, but that doesn’t necessarily mean multi-unit franchising is for you. Weigh the alternatives, assess your interests and skills, and then make a good decision.
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