When my business partners and I decided to become franchisees, we knew from the beginning that we wanted to be multi-unit owners. We also made the choice to become area developers. Area development is a special type of multi-unit franchise ownership. Instead of expanding to multiple locations on an ad hoc basis, a franchise area developer commits up-front to develop a particular territory within a specific timeframe.
Area development has all the advantages of multi-unit ownership, plus some unique perks. Franchisors typically give their area developers a price break on per-unit fees. For instance, a franchisor that charges $50,000 per unit might offer area developers a price of $40,000 per unit. Area development also usually comes with the rights to a larger territory, which can make the business less vulnerable to competition.
As you might expect, however, area development is a big responsibility. If you’re interested in this option, you should consider some specific factors before you take the plunge. In particular, I recommend that you do a self-assessment focused on money, commitment, expertise, and capacity. Let’s look at each factor individually.
Money
Area development usually has a steeper cost curve than ad hoc multi-unit expansion. An ad-hoc multi-unit owner doesn’t pay for a unit until they purchase it. A franchise area developer, on the other hand, often has to pay up front for all the franchises covered by the development agreement. So even though they may pay a discounted per-unit fee and save money over time, the total up-front cost is higher.
Some franchisors also require an area developer to open their first several locations simultaneously, or within a very short timeframe. So instead of paying for just one franchise launch at a time, the franchisee may have to pay for several at once. Given that total startup costs for a single franchise can run into the hundreds of thousands of dollars, area developers often need to come to the table with resources of a million dollars or more.
Commitment
Franchising always requires commitment. Every franchisee has to sign an agreement pledging to follow the franchisor’s business system, uphold the franchise brand, and pay a regular royalty and/or marketing fee. Some franchisors also impose requirements such as mandatory training, the use of certain suppliers, etc. A franchisee who doesn’t fulfill these obligations can be subject to financial penalties or even termination of the franchise agreement.
A franchise area developer must accept an even higher level of commitment. The details vary by franchisor, but area developers usually must agree to open a minimum number of franchises within a certain timeframe. The minimum may be as low as a few units or as high as 15, 20, or even more. Other area development requirements may include a large minimum financial investment, a commitment to support fellow franchisees, a minimum marketing spend, and more.
Expertise
You don’t have to be a former executive to be a successful franchise owner. Tradespeople, pastors, teachers, homemakers, and more can all build successful careers as franchise owners. If you want to be a franchise area developer, however, I definitely recommend that you have strong business experience.
Area development involves setting up and overseeing a mid-size or large business operation, sometimes across state lines. You’ll be more likely to succeed in the role if you have experience running a company or a corporate division. You’ll need to know how to create a business plan, negotiate with and manage vendors, oversee business launches and ongoing marketing, hire and fire employees at multiple levels, work within various regulatory frameworks, and manage business financials. You must be comfortable delegating and leading, not doing all the work yourself. I say this not just because you’ll be more successful if you have these skills. A good franchisor won’t let you become an area developer without them.
Capacity
Area developers must also have more financial and personal capacity than other franchisees. On the financial side, area developers must be able to go longer without paying themselves a salary from the business. A single-unit owner can usually start drawing a salary once their business reaches profitability. If they want to expand, they can choose to time the expansion so that it doesn’t disrupt their income. An area developer, however, must invest their early profits back into the business, to fuel growth. They usually can’t start drawing a salary until they’ve fulfilled all or most of their development commitment to the franchisor and the overall business is profitable.
In addition, area development is simply more demanding than opening a single franchise location or expanding on an ad hoc basis. Area developers typically have to open multiple locations simultaneously, or in rapid succession. Managing all those launches is draining and time-consuming. You must have the time and energy to work very long hours and juggle many competing priorities. I recommend that you have a strong support network, too. I worked a full-time job while opening six franchises, but I had assistance from two business partners and a capable franchise manager. In addition, my amazing wife handled all the domestic responsibilities so I could focus on work.
Despite the demands, however, area development is an exciting undertaking. It’s the perfect role for an experienced, well-resourced franchisee who loves to build things from the ground up. If that sounds like you, schedule a call with me. I can help match you with a franchisor that’s looking for area developers who fit your profile–let’s start the process today!
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