What Is a Franchise Structure? The Basics You Need to Know

Buying a franchise can be a smart decision if you want to improve the chances of successfully launching your new business.

You will be joining a proven business model and trading under a known brand name. The processes you use will have been improved over many years.

With the best types of franchise, you will also receive full training in how to operate and grow your business. You will also have marketing done on your behalf, so new customers are found for you.

But the first step in choosing the franchise you buy can be confusing. There are several “entry points” in most franchise systems.

The simplest is a single unit franchise which you will run day-to-day. However, there are several others. Here is what you need to know about the different franchise structures you will find:

Table of Content

Table of Contents:

What are the main franchise structure types?
How do I choose the right franchise structure for me?
The franchise structure which fits your skills – your options

What are the main franchise structure types?

There is no single typical franchise structure used by every franchise system. There are four which are the most common:

1) Single unit franchise

Sometimes called an individual franchise or a direct-unit franchise, the single unit franchise is what most people think of when they think of a franchisee-franchisor relationship.

In a single unit franchise, you buy the right to own and operate a single franchise business location. Most people with a single-unit franchise are owner-operators. They run the business themselves every day, usually with solid support from their franchisor.

2) Area development franchise

An area development franchise is sometimes called a multi-unit franchise or a regional developer franchise.

Under this structure, you buy the right to own and operate multiple units, usually within a specific geographical area. You are normally only allowed to open a certain number of units within your region (this is sensible, as you don’t want the franchise units in your area to compete with each other).

As an area development franchise, it is part of your role to recruit more franchisees and have them open new units within your geographic area. Some area development franchisees run their own unit within their region at the same time.

In return, as an area developer, you usually collect a portion of the franchise fee of all of the individual unit franchisees within your area.

Some statistics say that over half of all franchisees these days are owned by people who run more than one unit of a particular franchise. This can have significant benefits. Not only in the possible rate of expansion and profits but also in being able to more effectively deploy staff and set up central supply chains.

3) Master franchise structure

Sometimes called a sub-franchisor, a master franchisee can sell new franchise units to new franchisees (sometimes called sub-franchisees) they recruit within a certain designated region.

This is similar to an area development franchise structure. The major difference in a master franchise vs area developer comparison is one of scale. As a master franchisee, you are more likely to have an entire country as your region.

Again, as a master franchisor, you would then collect a share of the franchise fees of all of the sub-franchisees within your region or country.

At the master franchise level, you are likely to be the one called on to provide day-to-day support to the sub-franchisees in your region. This structure can become a little more complicated, as the responsibilities for support, recruitment and so on are often different in different franchise companies.

4) Area representative franchise

An area representative may also sound similar to an area development franchise. But in reality, as an area representative, you may be more like a salesperson than a true franchisee.

Most area representative franchisees do not have a standard franchise agreement. Instead, they have a special agreement with their franchisor to locate new franchisees to join the system.

However, there are many exceptions to this. Some area representatives do have their own single-unit or multi-unit franchise at the same time as their separate area representation role.

How do I choose the right franchise structure for me?

Selecting the right kind of franchise structure for you is often a matter of assessing your skills and matching them with the available franchise opportunities.

For instance, if you want a business where you are your own boss and can get on with delivering the services you know so well, a single unit franchise might be the best choice.

Alternatively, if you have a background that lends itself to recruiting solid new prospects and managing and supporting multiple teams, an area development or master franchise might be a good choice.

It’s worth knowing that some franchisors may want you to prove yourself through successfully operating a single-unit franchise before they trust you enough to be responsible for their brand on a regional or national basis.