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The Pros and Cons of Multi-Unit Franchise Ownership

Expanding a portfolio can be a lucrative path to success for some, but it depends on the business.

Once franchise owners have their first unit operating and bringing in success, opportunity often comes knocking in the form of expansion. Growing franchises turn to proven operators and offer them the chance to scale the business by adding additional units or territories. But before signing on the dotted line, it's wise to weigh the pros and cons of such a large commitment. 

Multi-unit is not for everybody; it's not easy and takes time, effort, resources and capital. But for the right companies and right businesspeople, it’s a great way to strategically grow and leverage opportunities while managing risk.

Pros of Multi-Unit Ownership

Owning several units of a franchise provides an opportunity to specialize in an industry and become a key figure in that brand. With adding more locations or territories to a portfolio comes an increased level of expertise, positioning owners as a powerhouse within the company. Brands often first look to partner with experienced multi-unit entrepreneurs rather than signing individual agreements with new candidates who aren’t as acquainted with the concept. 

“I firmly believe having more units owned by fewer franchisees is better. A smaller group of individuals who are good operators is the number one sign of a good franchise. That's something occurring at Lightbridge Academy*,” explained Manan Shah, a multi-brand entrepreneur who recently partnered with the education and childcare concept. “Lightbridge is eager to grow, but they value quality over quantity when it comes to franchisees. They let owners who've proven themselves run with the model and grow.”

Franchisees who sign multi-unit agreements also have the advantage of locking in territories early on. Many entrepreneurs will sign for several territories outright and then open them gradually. The purpose is twofold: getting in on deal terms early and ensuring rights to regions you’d likely want to purchase in the future. 

“With fast-growing brands, there might be an issue where you go to open a second location but somebody else has purchased the territory near you,” Joshua Kovacs, co-founder and CEO of Oakscale Franchise Development and multi-unit owner with concepts PetWellClinic and Xpresso Delight. “If there's a well thought out development agreement, it makes sense to pay a bit more to lock down territory rights beyond the first unit, to protect your investment and set a plan for growth.”

Cons of Multi-Unit Franchising

There are reasons why adding additional units to your portfolio is not wise, however. Some concepts are more compatible for single unit ownership due to the business model, the segment or other impacting factors. And while some companies may welcome continued signings, those brands may not necessarily be the best options to open multiple units with. 

Certain industries and kinds of businesses aren’t conducive to rapid expansion, and some brands focus on instead growing upwards rather than outwards. Happinest Brands, the parent company of home service concepts Lawn Doctor*ecomaids and Mosquito Hunters*, prefers to grow its brands by ones and twos. 

“We don’t award 5-packs or 10-packs because, with home services, that doesn't benefit franchisees; miles are not in their favor,” explained Sharon Cupach, vice president of franchise development. “We focus more strategically on helping our owners grow vertically more than horizontally. They can get market share more rapidly because they're much more efficient in their routes, which gives them an opportunity for profitability.”

To that point, it’s important to be weary when signing a multi-unit deal and to make sure the brand has healthy scaling goals. Growing is only a smart choice if the franchisor can support the expanding operations. Vetting a company and looking into its history of multi-unit partnerships is a vital step before executing the agreement. 

“Franchisors reach a very vital stage where they have to be careful not to outpace their systems. Growing too quickly means selling beyond support capacity,” said Kovacs. “If a brand has signed 100 franchisees in two years but only has the development capability to support 20 of them, the system can turn in on itself.”

*This brand is a paid partner of 1851 Franchise. For more information on paid partnerships please click here.