Learn the 4 main types of franchise arrangements: single unit, multi unit, area developer and master franchise.
The franchising industry is very versatile, with multiple franchises, industry options and investment ranges. In addition, there is a diversity of types of franchise arrangements available. Learning what they are is important so you can work with your Franchise Consultant on a game plan for your future!
Here are the 4 Types of Arrangements:
1) SINGLE UNIT
A single unit franchise is an agreement in which the franchisor grants the franchisee the rights to open and operate one franchise unit.
This is the simplest and most common type of franchise, and many new franchisees start this way, in order to “get their feet wet”. Many times, after the franchisee opened his single-unit and is prospering, he may negotiate with the Franchisor the possibility of opening other units over time.
2) MULTI UNIT
A multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate more than one unit. Typically there will be a schedule determined during which the franchisee will be expected to open the units.
3) AREA DEVELOPMENT
As an area developer, a franchisee has the right to open more than one unit during a specific time, within a specified area. As compared to the Multi-Unit agreement, in the Area development agreement, the franchisor grants the franchisee exclusive rights for the development of that territory. For example, a franchisee may agree to open 5 units over a five year period in a specified territory. That territory is restricted to that franchisee, and no one else can open units in the territory during the contract term.
4) MASTER FRANCHISE
So, as we said in the title, we would tell you what the “hidden gem” is in the franchising industry. So here it is: Master Franchise!
A master franchise agreement gives the franchisee more rights than an area development agreement. In addition to having the right and obligation to open and operate a certain number of units in a defined area, the master franchisee also has the right to sell franchises to other people within the territory, known as sub-franchises. It is like being a franchisor, but in a specified territory. You still have great level of support from the Mothership (the main franchisor), but in your territory you take over many of the tasks, duties of the franchisor, such as providing support and training. But naturally, as you are acting as a franchisor in the territory, you are also granted the benefit of receiving fees and royalties from the franchisees in the territory.
So not only you have all the revenue potential with the one or more units that you open in your territory, but you also receive a share of all the royalties and fees paid in that territory (including part of the initial franchise fee). This can be a great path for building wealth and a residual income source!