How Multi-Unit Franchisees Should Assess Their Next Franchise Brand?

Franchising offers entrepreneurs an accessible path to business ownership. They can reap the benefits of a well-established brand while keeping the autonomy of running the business. According to the International Franchise Association (IFA), the model continues to grow, with thousands of new franchise units opening each year.

Broadening business footprints, diversifying risk, and maximizing potential profits all drive franchise growth. The multi-unit franchising model fits these goals well, and a large share of franchise businesses now operate under it.

Introducing a new brand into that portfolio takes careful assessment, both for compatibility with what you already run and for future growth prospects.

This guide covers how multi-unit franchisees can navigate that complexity and assess their next franchise brand, so you can make informed, strategic decisions about your future franchising empire.

A multi-unit franchisee is an individual or business entity that owns and operates more than one franchise unit from the same franchisor. The franchisee agrees with the franchisor to open and manage multiple units, often within a specific geographic area.

This agreement outlines the rights and responsibilities of each party, including the number of units the franchisee is expected to open, the timeframe for opening them, the geographic area in which they will operate, and the specific terms and conditions related to the operation of the franchises.

Factors multi-unit franchisees should consider when assessing a new franchise brand

Several elements separate franchisees who scale well from those who stall. Below are the primary factors that should guide your evaluation of a future franchise brand.

1. Do your homework: conduct thorough market research

When assessing a new franchise brand, thorough market research is paramount. You can do this using methods such as surveys, interviews, data analysis, and competitor analysis. Look at current trends, growth rates, and the projected future of the market.

Understand the geographical dispersion of your prospective customers and the success of similar franchises in those locations. Reading the competitive landscape lets you develop strategies to differentiate your brand and capitalize on untapped market segments. It also helps you benchmark against industry best practices and identify areas for improvement.

2. Count the money: evaluate financial performance

A financially sound franchise is more likely to weather economic challenges, support its franchisees effectively, and keep a competitive edge. Understanding the franchise's financial health lets potential franchisees gauge its stability and potential for long-term success.

As you consider investing in a new franchise, assess the initial investment requirements. The upfront costs, including the franchise fee, equipment, real estate, and other expenses, will significantly impact your financial planning and overall success. Assessing them helps you avoid surprises along the way.

Give equal weight to ongoing fees, like royalties and marketing contributions. Evaluate these recurring expenses to measure their effect on your profitability and whether they align with your expected returns.

3. Build a skilled team: emphasize support and training

The International Franchise Association reported that labor difficulties in 2022 impeded the growth of more than 81% of franchise brands.

A franchisor that prioritizes comprehensive training sets the stage for a franchisee's success. Initial training often covers day-to-day operations, customer service, product knowledge, point-of-sale systems, administrative tasks, and, where relevant, food safety practices. This foundational training helps the franchisee's team get up to speed and establish best practices. Ongoing training then keeps teams current on product launches, technology updates, marketing strategies, and changes in operational protocols.

Effective onboarding goes beyond orientation. It also means verifying readiness, which is where remote competency testing and certification add value.

Support from the franchisor can extend beyond training. Their team can help you with site selection, a crucial factor affecting your new franchise's success.

Delightree helps multi-unit franchisees build a proficient team with task management, training, and performance tracking in one place. It improves communication and tracks compliance across all franchise locations.

4. Study the working: review the franchisor's operational standards

“Franchisees who closely followed company practices had the most growth and profit.”

Dennis Waldron, Area Developer for Ruby's Diner

Understanding and adhering to the operational standards a franchisor sets is a vital part of a successful franchise relationship. These standards often embody the brand's image, culture, and customer expectations.

Operational standards usually cover the franchisor's proven standard operating procedures (SOPs), from store opening and closing routines to inventory management. Delightree's platform simplifies this work with tools to create, manage, and monitor SOPs across multiple locations.

Customer service guidelines matter too. According to McKinsey, improving the customer experience can increase sales revenue by 2 to 7% and profitability by 1 to 2%.

Quality standards ensure the franchise's products or services meet certain requirements. For a food franchise, a franchisor may set specific guidelines about ingredients used, their sourcing, or the preparation method.

When opening a new franchise unit, make sure these operational standards align with your values and capabilities. If your business is committed to local sourcing, partnering with a franchisor whose standards require global sourcing may not be feasible.

Non-compliance with these standards can lead to legal disputes and damage the brand's reputation, lowering customer satisfaction and ultimately affecting your bottom line.

5. Carefully do the paperwork: focus on legal and contractual aspects

Legal and contractual aspects should never be overlooked. Read your Franchise Disclosure Document (FDD) carefully. The FDD, mandated by the Federal Trade Commission in the United States, contains 23 sections with detailed information about the franchisor, the franchise system, and the obligations of both parties.

It includes specifics about the franchisor's history, bankruptcy or litigation history, fees involved, initial and ongoing investment requirements, and other crucial information. Pay attention to franchise and royalty fees, which can significantly impact profitability.

Territory rights are another important aspect. These define the geographical area where you can operate and may limit competition from within the brand. Renewal rights tell you how and when the franchise agreement can be extended. Termination clauses specify the circumstances under which it can be ended.

Another important document is the Multi-Unit Development Agreement, also called the Area Development Agreement. Less complex than the FDD, this contract permits a franchisee to establish and manage several units of a specific franchise.

Given the complexity and importance of these documents in the franchisee-franchisor relationship, consult legal and financial professionals before signing.

Multi-unit franchising became popular in the late 1980s. Two factors primarily drove the shift. A new generation of franchisees pursued new ways of growing, moving from a "buy a job" mindset to multi-unit growth strategies. At the same time, franchisors moved from fearing franchisee dominance to deliberately creating multi-unit development plans. That change in mindset and approach has shaped the current franchise industry, promoting a culture of growth and innovation.