Franchising

Development formats and agreements in franchising can be divided into two broad categories: Single-unit franchising and Multi-unit franchising

Single-unit franchising: an arrangement by which the franchisor licenses the franchisee to operate the business from a single outlet. Single-unit franchising is the most common form of franchise and gives the franchisor the greatest degree of flexibility and control over the franchise system.

Multi-unit franchising: an arrangement by which the franchisor licenses the franchisee to operate the business through multiple single-unit outlets based on a development schedule. Multi-unit franchising is becoming more common as it maximizes the franchisee's profit potential and allows the franchisor to expand the brand in a specific territory. Successful franchisees often look to buy more than one franchise unit from the same franchisor.

A multi-unit franchisee may pay an up-front franchise fee (at a discounted rate) for each franchise unit that they will open. In a multi-unit franchise (sometimes called an area development franchise or simply an area franchise), the franchisor and the franchisee sign an area-development agreement that dictates the timing of unit development and openings by the franchisee. They also sign a separate unit-franchise agreement, which governs the operation of each outlet that the franchisee opens in his or her area.

Multi-level franchising

Master franchise/Sub-franchise: as franchisors want to expand into new regions, or even internationally, they often choose to use some form of multi-level franchising.

Although there are several variations on multi-level franchising, master franchisees, also known as sub-franchisors, have the right to grant unit franchises to third parties.

Multi-level franchising strategies are generally motivated by geographical factors. Having a master franchisee on the ground and close to third party franchisees mean they can communicate face-to-face with them more frequently. It also means the master franchisee is well acquainted with the competitive forces at play in the local market.

What's right for you?

A franchise systems maturity, geographical base and type of product or service all have an impact on how the system will evolve and grow over time.

The sheer diversity of franchising - the wide range of concepts and differing strategies for expansion and development formats - ensure that franchising will continue to provide new business opportunities well into the future.