When investigating franchises many people think in terms of opening only one unit or a one territory service concept. Many don’t know that options exist in looking at more than one unit/territory. Also, becoming a Regional Developer or Master Franchisee is also an option for those with more investment capital and the desire and vision to see the “big picture”.
So, a quick primer on these options, what they mean, some pros and cons . . .
SINGLE UNIT FRANCHISE
A franchisor awards a franchise to develop a single unit. If it’s a retail concept (a brick and mortar, destination location, customers come to you), you open one unit only. For home based service concepts, you have a defined territory and usually can’t expand outside that territory, unless you buy more territory.
- Lowest cost entry into franchising.
- If a single unit meets your goals: income, lifestyle, quality of life, etc., you’ve found a great business!
- Options exist to maximize flexibility – Owner can be hands on, absentee or semi-absentee.
- Maximum sales are capped; you can expand just so far. If this meets your income needs, great! If not, you’re stuck.
- If you want to expand later, neighboring territories may be sold.
- Wealth creation may be limited and overall financial objectives may not be able to be met.
A franchisor awards the rights to develop multiple units/territories on a development schedule agreed to by both parties.
- Single unit income is multiplied to allow you to achieve the income potential you want.
- You have a growth plan that meets your goals and the territory you need for expansion is secure.
- Sizable discounts for multi-unit development make this an attractive offer.
- Increased cost upfront to secure the territory you want.
- Requires broad minded management approach – not for everyone.
Some franchise systems elect to grow by having regional representatives develop the market for them.
Entrepreneurs who have the financial strength, the desire to develop a larger territory, see the big picture, and have the skill sets to coach and mentor others, like this model. It’s not a higher calling, just a different business model. Regional developers share in the initial and ongoing royalty fees with the franchisor. They bring new franchisees into the program; provide some of the initial training and ongoing support, perhaps provide regional marketing/advertising; they drive the market on a bigger scale. This could be a number of counties, a whole state, or multiple states.
- For the big player, this model allows for the creation of significant wealth.
- Small staff needed to run this type of operation.
- The Developer is removed from the day to day operations.
- An ongoing revenue stream is created.
- Risk is spread among many franchisees.
- Expensive, these licenses typically start at $100,000 to $150,000 and go up from there.
- Not a quick return on investment, income and wealth build slowly, like an annuity.
- Exit strategy is a bit harder to implement and can be much slower to effect because of the potentially higher return and resultax higher price.