Franchising multi-units is a great way for entrepreneurs to capitalize on the success of a proven business model. With a multi-unit franchise, you have the potential to increase your profits, expand your reach, and harness multiple streams of revenue–all while minimizing risk!
But it’s not without its drawbacks. Consider these 5 advantages and disadvantages of multi-unit franchising before you dive in.
5 Advantages of Owning A Multi-Unit Franchise Model
Taking a step towards franchising brings with it an inherent level of risk. But, you’ve taken the plunge by signing your franchise agreement and starting up business operations – demonstrating your willingness to take that risk!
Now that you have allowed your franchisor to purchase more than one unit of the same brand, you may be asking yourself “What’s in it for me?”
Fortunately, there are five key advantages of owning multiple franchises which can help make success even sweeter:
1. Steady Revenue Stream
As a multi-unit franchise owner, you can anticipate more stability and greater profits than single-unit owners. You will have the potential to spread your market by adding subsequent units. The bigger number of locations you own means that eventually, there will be an even larger pool of customers to draw from.
And since their income is sourced from various outlets rather than only one location, it allows them to mitigate any risks associated with running a business as well as receive higher overall revenues compared to traditional franchises.
2. Your Chances of Success are Higher the Second Time
You have already accomplished this with great results. You carefully chose a prime location, created the foundation for your business, and ran an effective marketing strategy – all leading to success!
This is extremely important because you can generate even better prospects when setting up another franchise given that you now possess more skills and knowledge obtained from prior experience. Therefore, your odds of doing well are much higher if seize the privilege of owning more than one location.
3. You Can Take Over Failing Units
Have you ever wondered why multi-unit franchisees often fail? It’s typically due to the fact that they don’t survive in their early years of business. This is a critical time for all franchises and striving during this period is important.
However, if your own franchise has passed its infancy stage and is running smoothly, then consider investing in struggling locations at an affordable price – as long as you have experience managing businesses like these!
By taking on cheaper opportunities within your system, there’s no doubt that you can make them profitable once more.
4. Scale Equals Greater Profits
As a multi-unit franchisee, you have an advantage when it comes to your expenses: You’re able to bargain for bulk discounts from suppliers thanks to your greater spending on advertising, marketing, training, and staffing. Plus with already experienced staff that’s being paid anyway – the potential profits are huge!
If you purchase extra units, your marginal cost will be lower and you’ll gain a greater return on investment (ROI) from multiple locations. Contrary to popular belief, more fees don’t necessarily equate to bigger investments; instead, it means “additional fees for increased returns”!
5. Owning Multi-unit Franchise Improved Franchisor Relationships
Let’s face it; franchisors prefer to work with franchisees who have multiple units since it demonstrates their commitment to the brand. Therefore, multi-unit owners are rewarded with perks that single-unit ones rarely get.
These include special discounts, personal support from the franchisor as well as exclusive access to resources and opportunities- better terms compared to single-unit owners.
But what are the downsides? Let’s be honest: Here is an overview of the pitfalls associated with owning multiple units that you should consider before taking on this endeavor.
5 Major Multi-Unit Franchise Disadvantages
When it comes to multi-unit franchising, the benefits and drawbacks tend to go hand in hand. It is essential to be realistic before expanding your market as you can’t anticipate a seamless system every time. How do you keep things balanced? Gain insight into this franchise opportunity which will help you decide if it’s right for your business.
It is essential to consider the potential drawbacks of multi-unit operations before investing:
1. Multi-Unit Investment Risk Is Higher
When you invest more money, you are putting more capital at risk. Investing in multi-unit franchises can lead to greater rewards and return on investments, but it also involves a higher level of risk. These risks may involve market fluctuations and competition from others.
There is always a chance that you may lose your money and have a hard time recouping your losses. And may result in cash-flow challenges.
2. Harder to Focus on a Particular Unit
When you own multiple franchise units, it can be an overwhelming task to manage all of them. One location could have a problem that needs addressing while another has something else entirely.
Although you have an experienced management team to run each location, these individual issues require your attention and swift resolution in order to prevent decreased profits. Unfortunately, this kind of juggling makes it difficult to stay on top of every detail as they arise.
3. Multi-Unit Franchise Ownership Needs More Staff
At some point, multi-unit ownership may require more staff as you would need help to manage the workload and oversee operations. This additional cost can quickly become a burden if your locations are not operating at their peak potential.
In addition, recruiting and training the ideal personnel becomes increasingly taxing when you’re managing multiple locations. You must consider not just the process of finding employees, but also how much time and money it requires to properly onboard them.
Ultimately, multi-unit franchising is a great way to generate income but it also carries considerable risk.
4. Franchisor relationships may be strained if units are not performing well
Owning multi-unit franchises can come with strings attached. If you’re not meeting expected performance goals, your franchisor could begin to consider you a liability and may terminate the agreement.
If you break any contract terms or fail to build good relationships with those involved, that can also be grounds for premature termination. The most common justification for dissolution is when the franchisee fails to fulfill monetary obligations such as fees/royalties payable to the franchisor or rental payments due on time.
5. Increased competition from other multi-unit owners in the same market
Increased competition from multi-unit franchisees in the same market can have a significant effect on sales and profitability. With more multi-unit franchisees, there will be more competition for customers’ attention, which can lead to lower customer loyalty.
Additionally, multi-unit operators may choose to undercut each other in order to draw customers away from competitors, resulting in decreased profits.
The Bottom Line
Multi-unit franchise ownership is a great way to expand your business, however, it should be approached with caution. Before taking on a multi-unit franchise model, you need to be aware of the risks involved and make sure that you are capable of meeting all contractual obligations.
Additionally, you must have an understanding of your local market and the competition in order to ensure success.
Carefully considering and planning multi-unit franchising can be a lucrative and rewarding business endeavor. To gain a deeper understanding of the franchise opportunity, consider working with a franchising consultant.
Find out more about multi-unit franchising in the “5 Questions To Ask Before Investing in a Multi-Unit Franchise Business Opportunity” blog. It will provide valuable information and help guide your decision.