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What Is a Multi-Unit Franchisee?

One unit or six? Multi-unit franchise ownership requires decisions beyond just a number of storefronts. What should be considered, and what role do multi-unit owners play in the industry?

By Morgan Wood1851 Franchise Contributor
Updated 2:14PM 06/16/22

According to Franchise Direct, “Multi-unit franchising is when a franchisor awards a franchisee the right to operate more than one outlet within a defined territory.” When developed carefully, a multi-unit model can create a remarkably lucrative business for both the franchisee and franchisor.

In 2018, there were a total of 43,212 multi-unit operators listed in the FRANdata database. Of this number, over 35,000 operators had two to five units, over 4,000 had between six and 10 units and just over 350 had 50 or more units. At the time of the data, it was estimated that these over 43,000 operators generated approximately $200 billion in annual revenue.

Paths To Development

There are two typical paths to multi-unit ownership. Sometimes, a franchisee will see success at a single location and work to slowly and steadily expand outward, developing a network of multiple units. Other times, franchisees become area developers, entering into an agreement with the franchisor to hold exclusive rights and the responsibility to develop a given region or market.

“A lot of people assume that entering a multi-unit agreement means they’re getting five locations and building them all at the same time, but in reality, there’s a development schedule,” explained Corey Elias, franchise broker and founder of Franchise Captain. “So essentially, you are committing to developing a certain number of locations — multiple locations. Most of the time, you'll build one location, get it running, then a month later, you'll build the second. You'll have a specific development schedule where the brand says you have to build out by this point.”

While neither approach is inherently better than the other, there are perks to each depending on where the brand stands within the market. 

“Multi-unit ownership works really well in the systems that are growing really quickly because, essentially, you're locking in territory,” Elias explained. Sometimes, choosing to open a single unit with less official intentions to grow later down the road can backfire. 

“So, in Atlanta, for example, territory sells very quickly. It's one of the top markets in the U.S., so if you want to build one unit and then build a second two or three years later, the opportunity probably is not going to be there. If it's a great brand that people are hopping on board with, you might not have the opportunity to get your second or third location because that territory could be sold,” he said.

Benefits of the Multi-Unit Model

Multi-unit franchising can be exciting and brings substantial opportunities for financial success, but it does not come without difficulty.

In general, multi-unit operations are considered to be lower risk and provide a higher chance of success as well as return on investment. Most franchisors will not award franchisees additional units until they have successfully operated one unit. So, approaching secondary and tertiary developments is easier or more predictable for franchisees who have “seen it all” before. From establishment to mature, daily operations, a multi-unit franchisee has experienced the process before and can carry this information with them, mitigating the risk of complete surprises and lack of preparedness.

Furthermore, investing in multiple locations has a diversifying effect on a franchisee’s portfolio, simultaneously increasing and distributing investments. Opening multiple units under the same brand not only allows a franchisee to potentially have a smoother operational experience, but it also creates a sort of internal network. Especially when the units are relatively geographically close, things like supplies or even personnel can be shared between locations in the case of an emergency.

Is Multi-Unit Franchising for You?

Elias emphasized that the path to franchising is incredibly personal and should take into account not only a potential franchisee’s financial goals but also their broader professional aspirations. In most cases, those who ultimately decide that the multi-unit route is a fit for them are especially driven people. 

“These are individuals that have big dreams, right? They really want to grow something big. They want to dominate a market, and they want to take over. Sometimes I even need to tell them to slow down and be patient!” Elias said.

In many cases, the decision to pursue multi-unit opportunities comes after a potential franchisee is confident in their choice of brand. Only after choosing a brand, doing personal research and talking with existing franchisees does a potential owner have enough information to confidently pursue multiple units.

“We really need to focus on what that client truly wants and getting them matched with the right brand.” Once a new franchisee meets with brand leadership, learns all about marketing and strategy, and is fully passionate about and committed to the vision, “That's when we have that conversation,” Elias said. When the prospective franchisee is already clicking with leadership and loving the franchise model, the choice to pursue a multi-unit opportunity feels more natural and can be made with far more confidence.