Understanding the different franchise arrangements
In franchising there are different industries and range of investments possible, and different types of franchise arrangements available to a business owner. Here are some 4 of the different franchise arrangements:
Single-unit franchising With this arrangement the franchise buys the right to run just ONE franchise unit. Depending on the type of franchise this could be anywhere from a specific address or premises, such as a certain shopping mall or defined suburbs, through to cities or even wider geographical areas. This will protect you from competing with your own brand should another owner be in the same area, it will not protect you from the competition.
Multi-unit franchising This is when a franchisor owns more than one unit in the same franchise network. A multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate more than one unit. They may initially only start with one but as time goes on they will be required to develop the business into a multi-unit operation. You can often get a discount on the franchise fee upfront to buy these and can sometimes have years to develop the other areas.
Area developer Under an area development franchise, a franchisee has the right to open more than one unit during a specific time, within a specified area. For example, a franchisee may agree to open 5 units over a five year period in a specified territory. The franchisor grants the franchisee exclusive rights for the development of that territory. They do not sell franchises.
Master franchising 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. Master franchisees may hold the rights for regions, states and the US as a whole if the franchise is from outside of the US. The master franchisee becomes technical the franchisor for their territory, i.e. they do the recruiting, training, marketing, as well as receiving fees and royalties.
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