Understand the 3 Best Types of Franchise Arrangements in Franchise Business
Fortune Franchise April 20, 2021
A franchise gives the perfect opportunity for aspiring entrepreneurs, individuals, companies, and investors. Also, the franchise industry is very versatile with business models, industry options, and investment criteria. Furthermore, it has diverse types of franchise arrangements.
Here in this article, let’s discuss the types of franchise arrangements in franchise business:
Unit Franchise
In the franchise business, a unit franchise is the most traditional and common form of franchising. It is divided into two categories:
- Single-unit franchise
- Multi-unit franchise
Single Unit Franchise
A single-unit franchise is a franchise agreement in which the franchisor permits the franchisee the rights to open and operate one (single) franchise unit. Here, franchisees have to invest their own money (capital) and apply their own management skills to run the franchise business.
Multi-Unit Franchise
A multi-unit franchise is a franchise agreement in which the franchisor grants the franchisee the rights to open and operate more than one (multiple) units. Typically, there is a schedule or required time during which the franchisee will be expected to open the units. A multi-unit franchise is gaining popularity and influence over the past decades. It certainly requires a higher investment level; it also gives stability and a higher rate of success.
Single Unit vs. Multi-Unit Franchise
| Single Unit Franchise | Multi-Unit Franchise |
| The franchisee is normally the manager, head over the management. | Each location might have a hired manager |
| It is generally a slow process and more cash-incentive is needed to establish | The cost can be spread over multiple locations |
| The franchisor must support & maintain each location separately. | Franchisor supports one general manager who monitors multiple locations. |
Area Development Franchise
Area development is a type of franchise agreement in which investors agree to open a specified number of business units within a given geographical area and timescale. When compared to the multi-unit agreement, the franchisor grants exclusive rights for the development of that territory.
For example, you agree to open 4 units over 5 years of period to the franchisor in a given geographical area, the certain territory is restricted and no one else opens units in the territory during the contract term.
Area Development Franchise vs. Multi-Unit Franchise
Although both the type of franchise arrangements aims for launching several business branches, way of approach is a bit different.
In Multi-unit franchise may acquire several business branches in one or more franchise brands. If the confidence & savings high, they can open up more than one unit.
On the contrary, when an area developer enters in an agreement to open multiple sites by chance if the business not delivered as expectations or not live up to conditions as per contract, the franchisor may penalize them also eliminate their territory or even end the franchise agreement.
Master Franchise
A master franchise is a type of franchise agreement that grants the franchisee the right to own and operate more than one establishment and also has the right to sell franchises to other people within the territory through sub-franchising, all during a specified time within a specific area.
A master franchise is well suitable for international development, often more knowledgeable and connected with the culture of designated territory to develop the business. Ultimately, you may take over many responsibilities & duties of a franchisor like providing training & support. The major benefit of a master franchise is can receive the franchise fees and royalties from the franchisees in the territory. A master franchise is an excellent path to mounting wealth and income sources.
At fortune franchise, we have highly qualified franchise consultant experts to direct you to choose the best type of franchise arrangements, according to your needs and requirements. Contact us now!