Within franchising there are a variety of different growth formats used by franchisors. It provides different opportunities for a prospective franchisee. Beyond the single unit franchise where a franchisee has a single location there may be the following potential growth opportunities within a franchise brand. Check with the franchisor to determine if these opportunities may exist with the brand you are looking at.
Although generally these definitions are consistent amongst franchisors there are sometimes variations. Some franchisors refer to the “area developer” as a “master franchisee’. Be sure to get clarity from the franchisor as to what his definition is so that you are both speaking the same “language”.
The multi-unit, area development or master franchisees are all similar in that they provide the licensee with the ability to generate revenues from multiple locations. Rather than investing in one location you invest in multiple locations so as to diversify and improve your odds of success. If one location is under-performing it can be offset by the success of other locations. You can also have on-going economies of scale where you share administrative costs between the locations. You can share training expenses, employees and management. The franchisee has greater earning potential while not having to go through more training or a learning curve as you are familiar with the brand and the operating system and are simply duplicating what you know.
Multi-unit, area development and master franchisees will usually come at a higher initial financial investment, offset by the potential for greater returns. You will want to ensure that you have the financial resources to open the multiple locations. Often lenders will want to see some proven performance from the first few locations before lending additional funds for continued growth, especially in today’s current economy. If you fail to meet the schedule outlined in the area development or master licensee agreement the franchisor may terminate the license. You would lose any upfront fees that you had paid. You would be permitted to continue to operate the stores that you opened but would possibly loose exclusivity of the development area.
For more helpful tips and valuable guidance on franchising, check out Wayne’s book Franchising Demystified.