Multi Unit Franchise: 5 Advantages And Disadvantages

5 Advantages And Disadvantages Of Multi-Unit Franchising | Franchise Coach

As an entrepreneur, expanding through multi-unit franchising can be a great opportunity to take advantage of an established business model that has already proven its success.

In the US, 53.2% of franchise units were owned by multi-unit operators last year, highlighting how popular and effective this strategy can be.

Multi-unit franchising allows you to increase your profits, expand your market reach, generate additional income, and tap into multiple revenue streams while minimizing risks.

However, it’s important to carefully consider both the advantages and disadvantages before committing to this approach.

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

One advantage of owning more than one unit or multi-unit franchises is the potential for a steady revenue stream. This is because multi-unit operators typically own and operate several units or more than one location of the same franchise brands, which can provide more consistent cash flow and profits than owning just one unit. This strategy is called revenue diversification.

In addition, a multi-unit operation often involves economies of scale, which can lead to reduced costs and increased efficiency. For example, a multi-unit franchise owner may be able to negotiate better pricing from suppliers, share marketing and advertising expenses across multiple locations, and streamline operational processes across their units.

Another advantage of multi-unit franchising is the potential for greater geographic reach and brand recognition. By owning multiple units in different locations, a multi-unit franchisee can increase their presence in a market and build a stronger brand reputation. This can help attract more customers and drive higher sales.

Therefore, while multi-unit franchising can require a larger upfront investment and more management resources, it can provide significant financial gains, efficiency, and brand recognition.

2. Your Chances of Success are Higher the Second Time

This is because, with each additional unit you operate, you gain more experience and knowledge about the franchise system, the market, and your customers. This experience can help you avoid mistakes and make better decisions when it comes to operating your next unit.

Further, operating multiple franchise units can provide greater opportunities for economies of scale, which can result in lower costs and increased profitability. For example, you may be able to negotiate better pricing from suppliers or streamline your operational processes across multiple franchising, resulting in cost savings.

Furthermore, being a franchise owner of numerous units can enable you to diversify your sources of revenue and mitigate potential risks. If one unit is underperforming, you may still have other units that are generating revenue and profits. This can provide a cushion for your business and help you weather any downturns in the market.

So this means that operating multiple franchise systems can provide a range of benefits,

These benefits can increase your chances of success and help you build a more profitable and sustainable franchise business.

3. You Can Take Over Failing Units

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Another advantage is the ability to take over failing units and turn them around. Many multi-unit operators may have more financial resources, management expertise, and experience than those owners of a single-unit location. This can help you identify the underlying issues causing the unit to fail, and implement strategies to address them.

Taking over a failing unit can also provide an opportunity to acquire an existing customer base, brand recognition, and operational infrastructure. This can help you reduce your startup costs and accelerate your growth, as you may not need to invest as much time and resources in marketing and building your franchise brands from scratch.

Furthermore, turning around a failing unit can be a rewarding experience, both personally and financially. Successfully improving the performance of a unit can lead to increased revenue, profits, and long-term sustainability of the franchise business.

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 more than one location. 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

In light of the recent trend, when multiple franchisees own and manage numerous units of the same brand within a specific market, they might find themselves in competition for the same customer base. This can result in reduced sales and profits for all franchise owners involved.

To mitigate this risk, franchisees can focus on differentiating their units from competitors through factors such as location, service quality, menu offerings, and marketing strategies. They can also collaborate with other franchisees in the same market to share best practices, coordinate marketing efforts, and support each other in achieving success.

Also, a multi-unit franchisee can work closely with the franchisor to understand the market dynamics and identify opportunities for growth and expansion. This can involve:

Overall, while increased competition from other multi-unit franchisees in the same market can be a challenge, franchisees can address this challenge by focusing on differentiation, collaboration, and innovation to stay competitive and achieve long-term success.

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

Owning multi-branding franchise operations may seem like a lucrative investment opportunity, but it comes with its fair share of risks. Apart from the added maintenance costs and tenant management responsibilities, multiple franchise units also expose property owners to a higher potential risk of loss.

Whether it’s dealing with an unexpected property damage claim or having to deal with problem tenants across multiple units, the risks only increase with the number of units under your ownership.

Therefore, it’s important to carefully assess your financial ability and risk tolerance before diving into the world of owning various units to ensure you can handle the potential downsides that come with it.

2. Harder to Focus on a Particular Unit

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.

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

Multi-unit franchise ownership can certainly require additional staff to effectively manage and operate different locations. Owning multiple franchise units can be a complex and demanding undertaking, and it may be difficult for a single individual to handle all of the responsibilities involved.

Some of the key areas where additional staff may be needed include:

1. Operations

Each franchise location requires a team to manage day-to-day operations, including customer service, inventory management, and compliance with franchise standards. As a multi-unit owner, you will need to oversee the operations of different units, which can be challenging without sufficient support.

2. Finance and Accounting

Managing the finances of multiple franchise locations requires a dedicated team to handle bookkeeping, budgeting, and financial reporting. Additionally, each location will have its own cash flow needs, and managing these can be difficult without the proper financial expertise.

3. Human Resources

Multi-unit owners will also need to manage the human resources needs of each location, including hiring, training, and employee retention. Having dedicated HR staff to manage these tasks can help ensure that each location is staffed with skilled and motivated employees.

4. Marketing

Marketing is another important area where many multi-unit owners may need additional staff to effectively promote each location. With multiple franchise locations to manage, it can be difficult to develop and execute marketing strategies without the help of a dedicated marketing team.

In short, owning multiple franchise units can be a demanding undertaking, and it may be difficult to manage all of the responsibilities involved without the help of additional staff.

By investing in a dedicated team to manage operations, finance and accounting, human resources, and marketing, multi-unit franchisees can increase their chances of success and grow their franchise empire.

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 multi-unit 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

When multiple franchisees own and operate several units of the same franchise brand in a particular market, they may end up competing for the same customers, which can lead to lower sales and profits for all franchisees.

To mitigate this risk, franchisees can focus on differentiating their units from competitors through factors such as location, service quality, menu offerings, and marketing strategies. They can also collaborate with other franchisees in the same market to share best practices, coordinate marketing efforts, and support each other in achieving success.

In addition, franchisees can work closely with the franchisor to understand the market dynamics and identify opportunities for growth and expansion. This can involve analyzing market data, conducting customer research, and exploring new product or service offerings that can differentiate their units from competitors.

While increased competition from other multi-unit owners in the same market can be a challenge, franchisees can address this challenge by focusing on differentiation, collaboration, and innovation to stay competitive and achieve long-term success.

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.

Consider also a Franchise business review which can assist you in your decision-making process. Because a Franchise business review can be a valuable tool in helping you make informed decisions about which multi-franchise business opportunity is a good fit for you.

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.


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