Examining the four levels of franchising along with evaluating specific franchises
will help you in selecting the best franchise that will meet your needs and
goals. Enclosed are the four levels of franchising which include information
on the territory specifics, the required level of participation, and the typical
liquid capital requirements.
Single-unit Franchises
A franchisee has the right to operate one franchise unit. Most franchisees
enter the world of franchising by owning one unit. It is a great way to get
in and understand the system before taking on more units.
Territory: The franchisee may have a small radius of exclusive territory to
operate within. If it is a retail store, the area of exclusivity may be a two
or three mile radius around the store. If it is a home-based business the area
may consist of a few specific zip codes.
Level of participation: The franchisee is very involved with almost all operations
of this type. Even if it is a semi-absentee owned business, the franchisee will
want to be present at the business and be as hands-on as possible.
Typical liquid capital required: $25,000 to $60,000 initial out-of-pocket investment
required on a total investment of $100,000 to $200,000.
Multi-unit Franchises
The franchisee acquires more than one unit of the franchise, usually at reduced
franchise fees. The risk is lower because the franchisee can take advantage
of the economies-of-scale theory; by spreading costs across multi-units, the
locations may be more successful. A good sign of the health of the franchise
is if many of the franchisees are multi-unit owners.
Territory:There is usually no exclusive territory where the franchises must
be set up. The franchisee may have one unit in one part of town with a surrounding
radius of exclusivity, and another unit in another part of town 15 miles away
or even in another county with its exclusive radius of operation.
Level of participation: The franchisee is less involved with each of the units
operations, but will be managing multiple operations and will need to have some
level of supervision in each unit. If many units are opened, a general manager
and additional administrative and training staff may be needed. The franchisee
is more of a general manager when many units are involved.
Typical liquid capital required: $50,000 to $70,000 initial out-of-pocket capital
is required to take care of mostly the initial franchise fees. The rest of the
investment is usually financed when each unit is opened.
Area Development Franchises
This license usually grants the franchisee the right to open a certain number
of franchises in a given area. There is usually a production schedule where
the franchisee must open a certain number of franchises during a certain period.
The franchisee has an exclusive area where no other franchisees can be allowed
to open a franchise.
Territory: The franchisee maintains an exclusive geographic territory as long
as the opening schedule is maintained. The territories range from a small city
to parts or all of a larger city.
Level of participation: The franchisee will be very involved in the beginning
stages of the first location to make sure it is successful. The franchisee will
also need to be looking for qualified real estate to open the next few locations.
Once several locations are open, the franchisee will need additional assistance
to manage several units.
Typical liquid capital required: $60,000 to $120,000 initially to secure the
area, pay all franchise fees, and have additional start-up capital. The franchisee
will then need to be able to finance the rest of the start-up costs for each
of the franchises, as they open.
Master Franchises
A Master Franchisee, sometimes called a Regional Developer, has the rights
to a larger area than that of an Area Developer. The Master Franchisee, in addition
to opening franchises at a much reduced franchise fee and royalty, can also
sell unit franchises, multi-unit franchises and area development franchises
and make a nice return on the sale. The master usually receives a part of the
royalty and franchise fee paid by each franchisee. There may be additional income
available from distribution of products through the franchisees in the area
and possibly even some real estate interest. The master becomes somewhat of
a sub-franchisor for the area, without having experienced all the trial and
error the original franchisor did. The master franchisee will usually want to
open and operate at least one unit (pilot location), for income and use as a
training center. Master franchises are rare; most franchisors do not offer them.
However, when they are available they usually sell quickly. The income available
from a master franchise is extremely lucrative. The initial investment is low
compared to the type of value you can build in the master franchise area. The
flexibility is also the greatest at this level.
Territory: Usually is a large metropolitan area, an entire state or even several
states or country. It is an exclusive area and will remain exclusive as long
as the master franchisee meets the development schedule of franchises in the
territory.
Level or participation: The master franchisee will usually set up and operate
at least one unit and use a manger to manage it while working on selling other
"sub-franchises" and assisting them in operating properly. Very
rarely is a master franchisee "hands on" in a unit franchise. They
tend to spend more of their time operating like a business consultant or coach
to their franchisees to help them become successful.
Typical liquid capital required: $100,000 to $250,000 is needed to acquire
the territory and for initial liquid capital to start the area. Financing will
be secured for the start-up of the unit franchise.
AT Franchise Consultants offers franchise opportunities for:
