Pros and Cons of Multi-Unit Franchise Ownership
Steve Jackson, CEO of Hungry Howie’s Pizza & Subs, compares multi-unit franchise ownership to having children. “The first one or two units you can handle, but more than that, you’re outnumbered, and it requires a different skill set and a different type of franchisee. It also requires a different type of franchisor.”
There is no doubt that if you are considering becoming a multi-unit franchisee, there are many things you need to be aware of. Here are a few of the pros and cons of multi-unit ownership:
- Support from the Franchisor and Franchisees: Being part of a franchise system, whether you own one or multiple units, offers significant benefits over starting a business on your own. You’re part of an established system and franchisee community that guides you along the way, and you benefit from the system’s resources and tools for many business “basics” like marketing and website support. Multi-unit owners need different support than single-unit owners, so it’s important to ensure the brand you are considering can provide it.
“We have systems in place that enable our franchisees to do an orderly increase of locations and to effectively oversee all their locations,” says Jose Merille, President of Estrella Insurance. “We offer extensive training for all of our franchisees. In the case of the multi-unit operator starting for the franchisee with the capacity to grow a specific territory consisting of multiple locations ranging from 10 to 50, we do a lot more extensive training with them and/or the management personnel they bring on board.” Although only 33% of Estrella Insurance’s franchisees are multi-unit operators, they run 74% of all of its locations.
“We give our franchisees multiple platforms that enable them to connect, support, and learn from each other,” says Stacy Eley, Vice President of Operations at MY SALON Suite. “They include an online private Facebook group and weekly conference calls. In addition, we have implemented a mentoring program where new franchisees are partnered with a mature franchisee who offers them support and encouragement.”
- Reduced Costs: Multi-unit ownership affords franchisees the opportunity to lower their costs per unit because their fixed costs are shared over more locations. Achieving economies of scale makes the business more profitable and more efficient over time. This is especially true in low-margin industries like food, since vendor relationships improve and expenses go down the more you buy.
“With four units, we are already seeing cost savings in areas of the business, specifically with resources that can be shared between the studios,” says Painting with a Twist franchisee, Todd Owen. “The ability to interchange talent between the studios has been very beneficial.”
- Easier Access to Financing: It’s often easier for multi-unit franchisees to get financing. Banks tend to be more receptive to multi-unit loans, particularly if the prospective franchisee has previous experience in the specific industry they’re looking to do business in.
- Brand Awareness: Part of the appeal of investing in a franchise is that it has a recognizable brand. Owning multiple units of the same brand enables you to more strategically utilize your marketing dollars to promote your locations.
- Can Attract & Retain Talent: You will have the ability to provide more opportunities for employees and recruit better people since they can move between your locations and have more roles available to them.
“As a multi-unit operator you have flexibility of personnel,” says Merille. “You can transfer, promote, or compensate them in ways that encourage them to remain and move up the ladder.”
- More Influence within the Brand: In most brands, the more units you have offers greater influence within the franchise system. The corporate office will likely take more notice of your feedback and needs.
- Higher Resale Value: Multi-unit ownership can also make a business more attractive if a franchisee wants to sell it down the road.
“If you have a long-term horizon to be attractive to a buyer, then you can do exceptionally well with multiple units,” says Ben Midgley, President of Crunch Fitness Franchise.
- A Big Commitment: If you commit to opening multiple units right out of the gate, be sure you know what you’re getting into from a financial and time commitment so you can honor it and be successful.
“Not fulfilling a multi-unit agreement can create an adversarial relationship between the franchisor and franchisees because it holds up a territory/area that could be developed by someone else,” says Jackson of Hungry Howie’s Pizza & Subs.
- Profitability May Take Longer: While multi-unit ownership ultimately can be more profitable, it can take longer to achieve profitability because the investment is higher.
“Careful consideration must be taken to allow the necessary amount of time to break even and become profitable for each unit,” says Merille of Estrella Insurance.
- Increased Risk: A bigger initial investment means more risk early on, although it’s spread out among multiple locations.
For more advice regarding successful multi-unit franchise ownership including what to look for in a franchise from a multi-unit investment perspective, tips from multi-unit franchisees, and how to finance multi-unit expansion, read our latest Top 50 Multi-Unit Franchises guide.