What is a Multi-Unit Franchise?

Rob Lancit

Date

Jun 22, 2020

If you’re looking into buying a franchise for the first time, you might have come across the term “multi-unit franchise” and wondered what it means. A multi-unit franchise is a type of franchise opportunity available in many franchising models.

The standard franchise is a single location that the franchisee purchases the right own and operate from the franchisor. A multi-unit franchise is a bit different.

When most people buy a franchise, especially if it’s their first time buying a franchise, they’re buying a single unit franchise. The terminology might be a bit confusing but it’s actually quite simple. Let’s take an automotive franchise as an example.

A single-unit automotive franchise can offer considerable revenues. A multi-unit automotive franchise can offer much higher revenues.

Usually, a potential franchisee will get in contact with an automotive franchisor who looks to be offering promising opportunities. The automotive franchise could specialize in general repairs, or focus on specific parts, such as windshields, tires, or transmissions, etc. If the potential franchisee decides that they think they can make money with this franchise, they then sign a franchising agreement. The franchisee pays a franchising fee and must cover the startup costs of purchasing/renting a commercial property, buying all the necessary equipment, and perhaps pay for marketing costs. This can be quite expensive, especially with an automotive franchise, but many franchisees secure financing from a financial institution or from the franchisor themselves.

Franchising agreements can be in perpetuity or can be for a set time (five or ten years, for example) after which the franchisee can agree to terminate the agreement and go independent. Usually franchises owe a small royalty fee on all or certain sales to the franchisor. In return, the franchisor allows the franchisee to use their brand name, their business model, their contacts with suppliers, and will also train the franchisee and provide ongoing support. The multi-unit franchise follows the same basic format, but everything is multiplied.

By purchasing a multi-unit franchise, you are purchasing the right to set up and operate several different franchise locations.

In the example we’ve been examining, the franchisee would purchase a multi-unit automotive franchise. This means that the franchisee now owns the right to two or more theoretical franchise locations in a given area. This comes at a cheaper price than if the franchisee were to buy these locations individually. And the franchisor benefits from selling multi-franchises because that’s an entire region taken care of in one sale and the franchisor does not have to invest extra time and resources in training another franchisee.