In the early days of franchising, when major brands were going public, the primary metric for success was annual unit growth. Back then, this typically meant focusing on single-unit franchisees as the standard path to expansion.
Today, franchisors also emphasize the percentage of new units launched by existing franchisees. This metric highlights three crucial factors:
- They are skilled operators.
- They have earned the trust of their franchise network.
- The brand is robust enough to attract investors eager to expand.
These qualities make the franchise more appealing to prospective investors and new franchisees alike.
Moreover, in recent years, franchisors have shifted their strategy towards fostering multi-unit franchisees. They accomplish this by either recruiting new franchisees through franchise consulting services, multi-area agreements or encouraging current, successful franchisees to open additional units or acquire underperforming locations.
In this blog post, we’ll explore why multi-unit growth has become the top priority for many franchise brands.
Aside from emerging franchises that focus solely on single-unit sales, most growth comes from existing franchisees expanding into multi-unit operations. Here’s why franchisors often choose the multi-unit model to grow their business:
- Proven Success: Franchisors encourage their already successful operators to expand because past performance is a strong indicator of future results. This strategy minimizes risk since these individuals have already demonstrated their ability to thrive.
- Consistent Execution: Operators familiar with the business standards and systems tend to execute them more reliably. Their proven track record ensures that new units will likely maintain the same level of operational excellence.
- Cultural Alignment: Franchisors know and trust their top-performing operators, recognizing that they share similar values and passion for the business. This cultural match reduces potential conflicts and fosters a smoother working relationship compared to onboarding entirely new operators.
- Reduced Training and Support Needs: Experienced franchisees already understand the management systems and best practices in place. As they take on additional units, they generally require less training and support, streamlining the expansion process.
- Fewer Operational Issues: With better communication and an in-depth knowledge of the system, multi-unit operators tend to face fewer problems. Their commitment to the business ensures that operations run more smoothly.
- Cost Efficiency: Support resources, such as business consultants, are typically assigned per operator rather than per individual unit. This means that expanding with multi-unit operators can reduce the overall support costs compared to managing a network of single-unit franchisees.
- Lower Risk: The established relationship and demonstrated operational success of existing franchisees make additional expansion less risky for the franchisor.
- Easier Access to Capital: Multi-unit operators often have an easier time securing financing because their proven track record makes them more attractive to lenders, facilitating smoother financial growth.
These factors combine to make the multi-unit model a strategic choice for franchisors looking to expand while maintaining operational quality and reducing overall risk.
Why This Matters to You
There are plenty of reasons why many franchisors favor multi-unit franchisees—but why should you care? Managing a single location is a full-time commitment, while operating multiple units transforms your role into running an entire enterprise. This shift can open the door to both time and financial freedom.
Consider a typical scenario: a franchise generating $500,000 in sales with a net profit margin of 10% (before taxes and loan payments). Typically, a franchisee earns about 5% of net sales per unit—roughly $25,000 in annual profit per location. When you add in the cost of a manager’s salary, which might range from $40,000 to $50,000, one unit might yield around $75,000 a year. Although this income could replace a traditional job, it often isn’t enough to achieve true financial or time freedom, especially if you’re involved in day-to-day management.
Expanding into a multi-unit operation changes the equation: with two units, you double your profit; with three, you triple it; and so on. Moreover, by delegating daily operations to managers, you free up your time while still enjoying the financial rewards of growth.
Beyond increased profits, multi-unit franchising can simplify acquiring additional territory. You might grow by opening new locations near your existing ones or by taking over underperforming units or those from retiring operators. As many early franchisees look to exit the business, opportunities for strategic expansion arise.
Additionally, multi-unit operations often experience higher employee retention rates because they offer team members clear pathways for advancement. In short, the key benefits of a multi-unit approach include:
- Streamlined Management: Each unit has its own manager, easing your workload.
- Enhanced Employee Retention: Opportunities for growth keep your team motivated and reduce turnover.
- Scalable Profits: Each additional unit boosts your overall income.
These advantages collectively help pave the way toward achieving both time and financial freedom.
If you’re concerned about transitioning from a single unit to multiple locations, rest assured that there’s a wealth of expert advice available—from online video resources to insightful podcasts—to help you navigate the challenges of multi-unit management. And if you’re ready to explore comprehensive support programs tailored to multi-unit operations, consider reaching out to knowledgeable professionals who can guide you on your path to successful business ownership.
