Before getting involved in franchising, it’s important to consider the options in front of you. Every entrepreneur has different goals, skills and financial resources and these will necessarily dictate what sort of franchising they get into. One example of the careful consideration that you would need to take into account includes the types of franchises that are available to you. If franchising is new to you, then you should definitely take an interest in the differences between single-unit and multi-unit franchises. Wondering what they are? Let’s take a look.
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Definitions: single-unit vs. multi-unit franchise
The single- and multi-unit franchises are two of the most common franchise types you’ll come across. Whereas the former was the traditional type of franchising historically and has developed over the past 50 years, the latter is a more recent phenomenon that’s gaining a lot of traction. And now with this background in mind, let’s explore what each of these franchise models means:
- Single-unit franchise: the single-unit franchise is when an owner(s) of a franchise unit operates only that unit in one location. This type of franchising can be more expensive on the whole as it requires a lot of resources, time and effort spent on training staff in the franchisor’s business model and operational structures to ensure that the franchisee is on board with the parent brand. A single-unit franchise example would be where one owner owns only one Subway franchise in one location.
- Multi-unit franchise: a multi-unit franchise is also owned by one individual but this individual owns multiple units in one geographical location. Spreading the risk and costs with this type of model is much better for the franchisor because they can concentrate their efforts on training staff and the franchisee partner all in one go at the same time. A multi-unit franchise example would be when one Subway franchise owner owns eight different Subway outlets.
Differences between a single-unit and multi-unit franchise
Now that we’ve covered the basics of the single-unit franchise structure and the multi-unit franchise structure, we’ll explore some of the major differences between the two in more detail, taking into account the most important differences between them and how they work in practice.
Infrastructure
A franchisor offering single-unit franchise business for sale will need to consider the infrastructure that they have on offer. This will often be included in the franchise fee and the initial investment the franchisee will have to pay. Infrastructure can refer to both tangible and intangible assets such as brand identity, machinery and equipment, software and others.
A single-unit franchise will be more costly to set up, whereas a multi-unit franchise will be more affordable because the cost is spread across different locations. This means that the resources for a multi-unit franchise can be more fully optimised.
In addition, the franchise systems in place can be more easily replicated across multiple units and will be less costly than a single-unit franchise.
Appetite and capacity for growth
A single-unit franchise is ideal for entrepreneurs who would like to see incremental growth and don’t have the budget for a rapid expansion as yet.
A multi-unit franchise owner will usually make a lump investment in a single go and better reap the financial results. This means that finances play a major role in whether to choose a single- or multi-unit franchise.
But what’s more, is that a multi-unit franchise owner will have a greater capacity for growth and will be able to mitigate losses better owing to some locations that may be performing financially better than others. This means that risk is spread and absorbed more evenly in this type of model.
Franchisor-franchisee relationship
The franchisor-franchisee relationship is crucial in the sense that this becomes a partnership that will be in place for several years.
As a single-unit franchise owner, you’ll be able to get training and support from the franchisor directly, although sometimes a manager acting as a sort of middleman will be involved in the process.
However, with multi-unit ownership, the chances of a middleman are usually quite slim as this party is cut out from the process, enabling the franchisee to reach out directly to the franchisor in the event that they need additional help.
Location
A further difference between the two models is that single-unit franchises usually operate within one location only. This is because they have not purchased the rights to operate in more locations. Since other franchisees may be operating in nearby areas, they are divided geographically in order for them not to compete with each other.
A multi-unit franchise owner will have several outlets in the same area. They will essentially be competing with themselves. But as mentioned above, they will be able to mitigate risks that much easier.
Skills and expertise
Single-unit franchises are often for entrepreneurs who are just starting out and investing their life savings in a proven business model. These entrepreneurs bring with them numerous useful skills that can help them in their endeavours. However, they may not be able to run a franchise from scratch and they will need to be trained in managing their operations. This management style franchise structure will be replicated among other franchise units.
However, with a multi-unit franchise, the owner usually hires various managers to handle the different outlets, which means more time to focus on larger corporate goals as opposed to focusing on the day-to-day operations of the business.
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In closing
There are some important differences between single- and multi-unit franchises and these must be considered carefully when you plan on entering the world of franchising. While both have their advantages and disadvantages, multi-unit franchises tend to be more successful and are considered a more popular option as opposed to single-unit franchises. There’s a good reason for this. It’s because multi-unit franchises can hire and train more people to manage multiple locations at the same time. In addition, they can reduce costs and spread the risks of financial losses.
Overall, both franchise models make sense, depending on your projected growth anticipations as well as your business aspirations. If you’re looking to climb the business ladder slowly and steadily, the single-unit franchise model is for you. If you’re looking for faster growth and expansion, choose multi-unit franchising.
