If you’re a franchisee who has had success operating a single unit franchise, perhaps making the transition from a single unit operator to multi-unit one might be a viable growth option. As always, there are two sides to every decision that has to be made — advantages and disadvantages. While this isn’t a checklist to determine whether multi-unit franchising is to your taste, it might provide a clearer picture of the pros and cons of what you could be getting yourself into.
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Profits Vs Risk
The most quantifiable advantage of operating more franchise units means you have more revenue streams. Assuming that your franchise units are all operating with almost similar revenue and expense figures, this points to higher profits.
However, increasing your investment profile with additional franchise units also means you are taking on more risk because more money is at stake now. And of course, there is no guarantee that subsequent franchise units you open will be experiencing the same success as your current one.
Employee Retention Vs Human Resource Diligence
You might have a skilled and talented team of people working for you but at some point, they will all start to think about their futures. The bottom line is if employees perceive limited advancement for their career path, chances are they will be looking for opportunities elsewhere. Yet, by taking up multi-unit franchising, you could retain your talent by developing new growth opportunities for your team.
On the other hand, managing a larger group of employees requires having to invest more efforts into people management. You need to start thinking about a clearer picture for employee career advancements, competitive benefits, and maybe even introducing an employee handbook. Futhermore, hiring the right fit for your company culture also becomes more apparent, especially in the case of leadership positions, who could make or break the business with how they guide and set examples.
Economies Of Scale Vs Operational Pitfalls
Having more locations might allow you to take advantage of economies of scale in some situations. Firstly, you could ask for better costings for product supply from the franchisor since you will be making more purchases than compared to a franchisee who is operating only one franchise unit. Secondly, you could ask for discounted rates when dealing with third party service providers (i.e. repair & maintenance, pest control, marketing, etc.) since they will be engaged for more than one business location. With lower costs, you will be better able to provide competitive price advantages and tackle market changes.
But having more locations to manage also means the potential for operational issues to occur is higher. From brand image to customer service and product quality, managing multi-unit operations could be a challenging task, especially when standards always need to be consistent with the franchisor’s requirements.