Multi-Unit Franchising: Making Franchising Work For You
Franchising is meant to be a mutually beneficial business relationship between all parties involved. The Franchisor is allowed to expand efficiently through scaled growth and rapid expansion with the investment made by independent franchisees and the infusion of capital that comes with new franchise ownership. The Franchisee is provided the opportunity to build a business efficiently and effectively with proven business systems and infrastructure along with economies of scale that come with a network of businesses working together. Finally, the vendors and suppliers benefit from franchising by being able to scale with the organization and realize better margins with a consistent customer base following the same business model and operating platform.
Multi-Unit franchising is the most aggressive end of the spectrum and in a sense turbo-charges the franchise relationship for all parties. Multi-Unit franchising has many definitions and descriptions for the concept including master franchising, area developer franchises, regional director franchising along with others and really, the model has two distinctly different operating structures.
Area Developer Franchise Model:
An Area Developer Franchise is typically the definition for a model where a franchisee invests in a region for the right to develop a market as a sub-franchisor of the larger brand. The business relationship is typically based on an initial investment made by the Area Developer for the right to a given market where they are able to go out and market the franchise in that region. When they sell unit franchises in that market, they collect some percentage of all franchise fees and royalties collected from the Unit Franchises in that market. A typical scenario might be 50% of all franchise revenues paid to the Area Developer in that region.
This model is aggressive, fast moving and used by companies looking to cover ground in as short of a time period as possible. It has been used extensively in the commercial cleaning market by brands such as JanPro, Jani-King and Jantize America, but also was used extensively by Subway as they developed their brand globally. It also is a common model for international franchise development. Area Developer Franchisees are expected to contribute to the franchise relationship beyond the sale of the unit in support, training and local market infrastructure.
This model is highly aggressive and requires the right candidate in the Area Developer position to facilitate growth and support new franchisees in farther reaching markets.
Multi-Unit Franchise Structure:
A traditional Multi-Unit franchise model incorporates a franchise investor owning and operating the locations they invest in. This requires a much higher initial capital outlay to open the businesses than an Area Developer Franchise model in that the franchisee is investing in each business unit with real estate, leasehold expenses, employee and operating costs associated with the ramp up with each operating business.
This type of Multi-unit franchisee brings a lot of capital, a great deal of operating experience and a strong resume to the franchise system and is an enormously sought after candidate in the franchise market. My most recent experience with a multi-unit franchise owner was a candidate we ran into at a franchise show who owned 150 Joint Chiropractic locations, 15 Juicing franchises and 125 weight loss franchises. He had been in franchising for over three decades and knew what unit level metrics he wanted, when he found a brand, he invested in a big way then scaled. Multi-Unit franchisees could have anywhere from two to hundreds of locations. In some cases, a unit franchisee can be “promoted” to a multi-unit owner, with success and the right infrastructure, good franchises can be supported and eventually they should want to transition to multi-unit ownership.
As a franchisor, how do you recruit area developer and multi-unit franchisees?
First and foremost, create happy and successful franchisees within your system and network. Area Developer and particularly Multi-Unit franchisees will look to unit validation before anything else. These investors are intelligent, experienced and know the market. Your franchise needs to be able to impress this buyer with the right messaging, presentation, branding, market potential and most importantly ROI on the franchise model.
These owners are by nature big picture thinkers and will look at a bottom line and how easily the model scales as they are not operating any of the locations they own or operate within their market. As a result, you should have an earnings claim on your model that presents well, if you are a fixed location, restaurant or retail model the franchise needs to show a 100% return in 3-5 years on cash invested.
Service franchises typically should show a 100% return in 1-2 years on cash invested. The systems will be analyzed intensely by these investors, you need to be able to show that your model is repeatable and you have invested in the right technology to manage the day to day business without being in the business. These bigger investors come from many of the same marketing campaigns that individual franchisees are sourced through. Web and Internet marketing mediums, franchise tradeshows, franchise brokers and others are viable sources for Multi-Unit franchisees.
The messaging, presentation and quality of the presentation needs to be strong and relevant for a franchise investor of this caliber. If you want this type of buyer, you need to make sure you are saying the right things and have the right presentation to get these people engaged in your sales process. Once a Multi-Unit franchisee is engaged in the sales process, professionalism, consistency and an intelligent presentation will make all the difference in your ability to keep the candidate engaged in your sales model. These buyers have lots of options to consider and are unwilling deal with franchises they get any sense of lack of organization, focus or credibility, which means that you need to be buttoned up and have a very tight presentation.
One last thing I’ve found, skip the fluff and get to the point, these are busy people who don’t really care about the nonsensical marketing lingo and want to hear bottom line facts and figures. When you have identified the candidate as being a potential Multi-Unit buyer, structure your presentation to fit their attention span and focus on what is relevant. One more thing, these are candidates it might be worth “pampering”. Go ahead and spring for the flight to get them to your discovery day, take them to a sporting event, pay for dinner, think aggressively and be willing to invest in their experience with you in order to increase your odds of closing the big deal.
Christopher Conner is the President of Franchise Marketing Systems and has spent the last decade in the franchise industry working with several hundred different franchise systems in management, franchise sales and franchise development work. His experience ranges across all fields of franchise expertise with a focus in franchise marketing and franchise sales but includes work in franchise strategic planning, franchise research and franchise operations consulting.