Franchise operators are often looking for more opportunities to open additional locations. Each franchise agreement not only represents a new partnership between a franchisor and franchisee, but another chapter of growth in new and existing territories. For some franchises, growth occurs through single-unit franchises, for others through multi-unit franchises, and for the overwhelming majority, through a combination of both. We’re breaking down the strategic advantages and disadvantages for each of these franchising options.

Defining the Franchising Options

Though you might know the differences between single-unit and multi-unit franchising, we believe it’s important to start with defining these terms for the context of this conversation. Many business owners who turn to the franchise model already understand the value in growing through shared responsibility, especially in the ways it diversifies risk. Evaluating both franchising options helps business owners make informed decisions about the best approaches for expanding into new markets and scaling their brand.

Single-unit franchising is the most common method of expansion. In this case, the franchisor and franchisee execute a franchise agreement that grants the franchisee the right to own and operate a single franchise location. This traditional pathway involves a lower barrier of entry for potential franchisees, who only need to supply enough upfront capital for one unit. The franchisee also retains the responsibility for managing or overseeing the daily operations, adhering to the brand standards, and paying royalties and other fees for a single unit.

Multi-unit expansion provides a franchisee (also referred to as an “Area Developer”) the right to open multiple locations under the same franchise brand. Compared to single-unit operations, an Area Developer commits to opening multiple units over an agreed timeline. The Area Development Agreement also outlines the development schedule that details the opening of a predetermined number of units within a specified geographic area.

Advantages and Disadvantages of Single-Unit Franchising

According to the International Franchising Association (IFA), 82% of franchise owners fall under the single-unit category, making it the dominant choice between franchising options — and for good reasons.

Franchising is usually applauded as a low-risk expansion method for franchisors, but also as a low-risk opportunity for individuals, looking to own their own businesses. Single-unit franchising provides these individuals who may possess limited business experience, an avenue for ownership with a proven business model and system.

Single-unit franchises also require a lower initial investment and overall financial risk than multi-unit franchises. Items such as franchise fees, capital investments, product inventory, licenses and permits, and real estate needs are only required for one location. Similarly, recurring expenses such as royalties, marketing fees, and labor costs only pertain to the single-unit, further enticing prospective franchisees to invest in a brand.

In comparison to other franchising options, single-unit franchising streamlines day-to-day operations and management, both for the franchisee and franchisor. A franchisee only needs to spend time managing and overseeing one team in a single market. Along with internal management, the franchisee, often a first-time business owner, also benefits from strong training, support, and systems that guide him or her through the development, opening, and ongoing operation of the franchise unit. Similarly, a franchisor benefits from a more hands-on approach from these highly motivated and localized franchise owners.

Even with these enticing advantages, though, single-unit franchising options do have some shortcomings to consider based on your long-term expansion goals.

The single-unit approach does limit potential revenue and growth to one franchise unit (unless a franchisee elects to open additional units). The same principle also means franchisors can expect slower growth for the overall franchise brand as scaling hinges on the decisions of individual franchisees in terms of their potential expansion.

Between the franchising options, it’s also important to note that while the support system of a franchise can be invaluable to new franchisees, the level of support required of franchisors to maintain relationships, check-ins, and additional resources can be exponential as each new franchise unit represents another unit that requires individualized attention.

Advantages and Disadvantages of Multi-Unit Franchising

While single-unit franchising is the common expansion method for most new franchisors, multi-unit franchising offers one of the fastest avenues for expanding a franchise brand. With multi-unit franchises, the franchisor can watch his or her franchise network scale by the dozens. This approach can not only grow a business by leaps and bounds, but it provides more opportunities to expand into new markets while lowering the franchisor’s costs to acquire each new franchise location.

Between the two franchising options, a multi-unit approach maximizes operational efficiency at every level. To start, multi-unit franchisees can spread typical operational costs across multiple locations, taking full advantage of bulk inventory and equipment pricing, as well as administrative roles. In addition, many multi-unit franchisees bring existing business experience, which provides them access to the capital resources necessary to undertake these large-scale developments.

The same commonality also provides multi-unit franchisees heightened expertise through the negotiation process. As a result, it is not uncommon for multi-unit franchisees to secure reduced franchise and royalty fees and potentially lower development costs for the new locations. Despite the “lower fees,” franchisors still benefit from the multiplication of revenue guaranteed by the wave of new franchise units.

Outside of operational expenses, multi-unit franchising optimizes logistical efficiencies as well by providing opportunities to redistribute resources and share employees between locations.

Multi-unit franchising can also minimize the amount of training and support provided by the franchisor. In comparison to having to provide training and support to each single-unit franchise, the franchisor provides training and support to an Area Developer for the first location, and the Area Developer is typically responsible for providing training and support to each of its additional franchise units.

Even though there are many benefits to working with large-scale Area Developers, experienced franchisors know they come with their own growing pains. For example, franchisees who choose this option must confront the challenge of managing not just one location, but several. This reality applies to everything from high upfront capital costs to develop and open the agreed number of units, to overseeing numerous teams and managers, to maintaining a consistent customer experience across multiple locations.

Given these variables, multi-unit franchisees operate with a higher risk than single-unit franchisees. Constant turnover in middle management, a growing list of customer complaints from specific locations, or tight capital reserves as the Area Developer navigates each new build phase can add to the challenge.

The Formula for Success

After reviewing the advantages and challenges associated with both franchising options, you may still be wondering which one is the best fit for your industry and specific operation. For many new franchisors, single-unit franchises are the bread-and-butter option that provides ample opportunity to test different markets and fine-tune the process of opening new locations. It also provides franchisors tight control of their brand while diversifying responsibilities to dedicated, single-unit franchise owners. This being said, we believe it is best practice to include the multi-unit option in the Franchise Disclosure Document at the onset, so when a prospective franchisee expresses interest in this option, franchisors can legally discuss it with them.

As the experts in franchise development, FranSource knows there’s no magic formula for scaling any given franchise. Though many new franchisors begin with single-unit franchising, virtually all successful franchisors employ a combination of single- and multi-unit franchisees as they grow. Eventually, many franchisors are able to eliminate the single-unit franchise option entirely. However, by offering both options in the early stages of franchising a brand, a franchisor can reap the benefits of both options while mitigating their respective challenges.

Contact us today to begin your franchising journey and learn more about single- and multi-unit expansion methods.