In this edition of FranNet’s blog, we pose a thought-provoking item for your proposed entrepreneurial agenda. If you’re able to buy a franchise, should you consider buying three instead of one? Welcome to the case for multi-unit ownership. We begin by saying that multi-unit franchise ownership right out of the gate may not be suitable for everyone, but points in favor of the tactic are mounting. Some recent surveys show that as many as 56 percent of new franchise purchases are, in fact, multi-unit contracts. In the food franchise industries, the number is even higher at 75 percent.
When a multi-unit purchase is brought up (usually in the form of a “three-pack”), most budding entrepreneurs conjure up an image of a cash register readout, with the numbers climbing exponentially. However, that’s just the startup costs associated with getting in the game. What about once you’re in? Is it possible that operating costs per location could actually scale lower than with a single unit franchise?
Two answers: yes and absolutely. That’s because franchisee owners with multiple locations can actually lower their overhead expenses per unit, as fixed costs become shared with additional locations. The quest for finding the right economies of scale can, in fact, make multiple franchise locations even more profitable and efficient in the long run. Many experts point out that this concept is especially true among low-margin franchise industries such as quick service restaurants. Because all require key vendor relationships, multi-unit owners can usually negotiate for better deals, which in turn drive down expenses involving volume purchases.
It goes without saying that a multi-unit franchisee obviously requires a higher investment. But, as a budding entrepreneur, you also have to weigh the benefits. First and foremost, multi-units also provide much more stability and an even higher expected degree of success, as the units are no longer depending on just one territory to be judged an overall success.
In addition, it’s a pretty common practice for franchisors to offer reduced fees and even royalty waivers for a multi-unit owner. This is an added enticement for the franchisee ready to enter the game at a higher level of participation from the outset. It’s usually spelled out in great detail, but multi-unit franchisees are sometimes required to pay only a portion of initial start-up fees to “hold” the additional locations and territories while the primary franchise opens its doors.
With multi-unit franchising comes the core concept of consolidation of resources. Your shared advertising, marketing and corporate communication messages will go much further. By marketing each location with a single centralized message, you’re the one getting the 3-for-1 deal now. You can also marshal the frequency and reach by targeting the location with the most need for outreach, becoming much more efficient in getting through to your audience.
It goes without saying that a multi-unit franchisee purchase is still a formidable undertaking. Before you consider this possibility, seek out the advice of trusted legal and accounting contacts. The responsibilities you shoulder will be three times the factor of a single franchise purchase. But, as they say, with great risk comes great reward. In the world of assets, three franchises bring a factor of three to your potential wealth-building exercise of business ownership.
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