The Three Levels of Franchise Ownership

There are three commonly accepted levels of franchise business ownership, each with varying levels of investment and responsibilities. The level that is best suited to you depends largely on your level of experience, financial means, and personal aspirations, therefore, it is helpful to understand each of the three levels in more detail.

The three levels of franchise business ownership are:

Single Unit Franchise

In a single-unit franchise the franchisee will be responsible for running one territory within the franchise network. The franchisee is usually involved in the day-to-day operations of the business, either directly implementing the business operations, or overseeing a team who do it for them.

In a single-unit franchise the franchisee will be responsible for running one territory within the franchise network. The franchisee is usually involved in the day-to-day operations of the business, either directly implementing the business operations, or overseeing a team who do it for them.

Typically, single-unit franchisees will operate to a 5-year franchise agreement that is renewable for a further 5 years. At the end of this period, they will either renew for a further 5-years or sell/wind down their franchise business.

Common examples of single-unit franchising would be a solo small business advisor with a portfolio of clients. Another example would be a commercial cleaning franchise that operates in a single location and has a team of cleaners, supervisors, sales staff and a general manager overseeing the daily operations.

When transitioning from a corporate career into franchise business ownership, most people will go into a single-unit franchise, which more than adequately serves their needs to build a sustainable business, be in control of their destiny and possibly have an asset with a resale value (that can contribute towards retirement).

When transitioning from a corporate career into franchise business ownership, most people will go into a single-unit franchise, which more than adequately serves their needs to build a sustainable business, be in control of their destiny and possibly have an asset with a resale value (that can contribute towards retirement).

However, some people have bigger aspirations and will be looking for an opportunity that will allow them to build a more substantial business with larger returns. This is where Multi-Unit franchising comes in and can be the next step in your franchising journey.

Multi-Unit Franchise

Multi-Unit franchising is when a single franchisee will take on multiple franchise territories. In a multi-unit franchise business, you build out multiple locations under the same brand name, allowing you to build a larger, more substantial business with the potential to generate significant returns.

Multi-Unit franchising is when a single franchisee will take on multiple franchise territories. In a multi-unit franchise business, you build out multiple locations under the same brand name, allowing you to build a larger, more substantial business with the potential to generate significant returns.

A multi-unit franchise can be an attractive option for ambitious franchisees, particularly when they have adequate resources available to them. However, multi-unit franchising is not for the faint hearted – if a multi-unit franchisee is underperforming then it is unlikely that the franchisor will allow them to open any further locations (at least until performance increases).

For those multi-unit franchisees with serious aspirations, they may look to join a franchise with an Area Development opportunity.

An Area Developer is a multi-unit franchisee that will join a franchise under the expectation that they will open a certain number of locations in a particular timeframe. They are working to a predetermined schedule that they must follow, otherwise they risk the opportunity of being allowed to open more locations.

This level of franchise business ownership is for the more experienced operator and/or investor and normally requires an investment that totals well into the hundreds of thousands, or possibly low millions.

This level of franchise business ownership is for the more experienced operator and/or investor and normally requires an investment that totals well into the hundreds of thousands, or possibly low millions. To qualify as an Area Developer, a franchisor will usually be looking for people who have an established team in place and a proven track record of operating similar businesses at scale.

Multi-unit franchising can result in a substantial business, with anywhere from ten, to hundreds (possibly thousands) of staff working for you. It is ideal for experienced operators with significant financial backing. If you are looking for a substantial opportunity, but this is not quite what you are looking for, then next level of franchising could be for you. It is known as Master Franchising.

Master Franchises

Master franchising is the highest level of franchise ownership and is reserved for sophisticated operators with substantial financial means.

Master franchises are typically used when a franchisor wishes to expand internationally and requires the network, knowledge, and resources of local entrepreneurs. The master franchisee will purchase the exclusive rights to operate the franchise brand in its territory, which could be a city, state, or country. They will start by opening a pilot location themselves, which allows them to prove that the model works locally and allows them to make any necessary adjustments based on local market needs.

Master franchises are typically used when a franchisor wishes to expand internationally and requires the network, knowledge, and resources of local entrepreneurs. The master franchisee will purchase the exclusive rights to operate the franchise brand in its territory, which could be a city, state, or country.

Once a pilot location has been successfully launched, the Master Franchisee is permitted to recruit new franchisees to the brand, gradually expanding the franchise network. Master franchises collect franchise fees and royalty payments from the franchise network and revenue share these with the franchisor, creating a substantial recurring revenue stream.

Master Franchisees are usually sophisticated investors and/or corporate investors and have substantial operational experience. They have the financial backing to invest in acquiring the master franchise licence, which can often cost in the millions.

 Conclusion

For the large majority of those joining a franchise, they will almost certainly be operating at a single-unit level. Single-unit franchising is a wonderful opportunity that allows you to build a sustainable income by following a proven model. It allows you to take back control and be the master of your own destiny. It is especially relevant for those leaving corporate employment to start a second career.

Single-unit franchising is a wonderful opportunity that allows you to build a sustainable income by following a proven model. It allows you to take back control and be the master of your own destiny. It is especially relevant for those leaving corporate employment to start a second career.

While multi-unit and master franchising can seem appealing, both require significant investment, calculated risk taking and often will have you working longer and harder than a corporate role. Ultimately, the choice is yours. 

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