In my over three decades of experience as a franchise consultant, I am often asked about the different ways to franchise your business.
There are three main ways:
- Individual franchises
- Area development franchises
- Master franchises
Each of these methods to franchise your business requires a different Franchise Agreement and offers different benefits and drawbacks. In my August blog, I reviewed the pros and cons of selling individual units when you franchise your business.
If you take an area development approach when you franchise your business, you and the area developer negotiate a territory, the number of franchises to be opened and a timetable for these openings. If the area franchisee does not meet the terms of the Franchise Agreement, the territory reverts back to the franchisor.
Pros of an area development program
- Often it requires less time, effort and money to sell multiple franchises to one entity.
- The franchisor may find that less training and other support are needed after the area developer has launched his/her first franchise location.
- When you franchise your business, this approach can result in faster growth.
- Running multiple units can create significant savings for the franchisee over operating a single location.
- When you franchise your business, frequently, the candidates with the financial and managerial resources to operate multiple locations are more astute business people.
Remember, when you franchise your business, you can combine the individual franchise approach with the area development strategy to enable you to meet the individual goals of more of your franchise prospects.
Cons of taking an area development approach
- Because the requirements are more stringent, there are fewer qualified candidates.
- Typically, there is more competition for those fewer prospective area developers.
- The area development approach may not work with certain franchise concepts, such as those based on owner/operated units.
- Particularly at the outset of a franchise program, it can be more difficult to control multiple unit operators than individual franchisees, because the area developer is in a much stronger bargaining position. This problem can lead to dilution of the brand and operating system.
- Owner-operated individual franchises can be more profitable. Using an area development strategy when you franchise your business eliminates the owner/operator.
This is a complex decision. When you franchise your business, you must carefully explore which type(s) of franchising best meets your goals.