What is a Multi-Unit Development Initiative?

Multi-unit franchising can be a win-win scenario for both franchisors and franchisees. 

Onboarding franchisees is not always an easy or cheap process for franchisors. It can take a lot to ensure that potential owners are trained correctly and have everything that they need to succeed. Signing with a multi-unit developer can save a lot of time and trouble for brands, so franchisees can benefit from what are known as multi-unit development initiatives. 

To encourage franchisees to purchase multiple units at the same time, franchisors may provide financial incentives such as a reduced initial franchise fee for newly acquired units. Since the lower per-unit cost of supporting a multi-unit franchise typically reduces the overall support costs of the franchisor, they are able to pass these savings on to franchisees. Some franchisors might also charge lower royalties when franchisees reach certain revenue milestones. 

For example, Jack in the Box Inc. began sharing an incentive program with multi-unit franchisees as part of an aggressive growth strategy in 2022. The program offers significant financial benefits to those who enter into a minimum three-unit development agreement, Nation’s Restaurant News reported.

The financial incentives of the program include discounted royalty fees for new franchisees who maintain development compliance and sign at least three franchise agreements by March 2023. For the first five years of the unit being open, Jack in the Box will also offer discounted royalty fees for new franchisees, starting at 1% the first year, 2% the second, 3% the third year, 4% the fourth year and then 5% for the remainder of the agreement starting in the fifth year. This is a noteworthy incentive because, with an average unit volume topping $1.8 million, the discount can result in savings of up to $180,000 during the first five years of operation.

Golden Corral also announced an incentive of its own in 2022. A franchisee that develops a new restaurant under the incentive will receive a credit applied to their Golden Corral-approved broadline food service provider invoice. These credits, as a percentage of sales for the first three years of operation, directly reduce the operational costs during the critical early years.

However, incentives are not always about money. Flexibility is another big factor in incentivizing multi-unit franchisees. There are a lot of costs associated with launching a business, so franchisees want to know that they have a little bit of wiggle room when it comes to the types of locations they will be opening. 

Multi-unit Sylvan Learning* franchisee Chris Pittner, for example, told 1851 Franchise that he was inspired to grow alongside the brand because of its varying center sizes.

“We were looking for a company that was flexible with center size and location since rent is a large fixed cost,” he said, adding that this allowed his business to grow fairly quickly. 

These types of incentives, partnered with great franchisor support during the process, have the potential to guide franchisees in the direction of multi-unit ownership. But it will be their overall confidence in a brand that will determine who they decide to grow with.