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Franchising 101: What is an Area Developer?

By: Bill Bradley


Franchising 101: What is an Area Developer?

As more and more franchises move toward multi-unit growth, area developer franchisees are also becoming more popular. If you’re looking for multi-unit franchise opportunities, you might consider area development.

Here’s How It Works

Area developers are similar to multi-unit operators except they commit to opening a greater number of units encompassing a larger territorial area within a pre-determined time frame. For example, let’s say you franchise with Dunkin’ as an area developer in southern Nevada; you may agree to open 40 locations over the next 10 years throughout the Las Vegas area.

The Benefits of Area Development

Area developers own exclusive rights to their respective territory for the full term of their development agreement. Using the example above, that means no other franchisees can open a Dunkin’ in your territory, and you get to keep full control of the market share for yourself.

Franchisors also offer area developers pro-rated fees, since they commit to opening such a high volume of units; although every franchise is different, those discounts sometimes include the initial fee, franchisee fee and ongoing royalties. It’s like getting each unit for “wholesale” prices in exchange for building an established brand in a designated territory.

The franchisor gets accelerated brand awareness and rapid growth, while the area developer gets to start and expand their business much faster than a single- or regular multi-unit operator.

Many franchisors prefer area developers because they’re experienced in business, specifically in franchising, and they’re also better financed compared to single-unit operators. This makes it easier to plan market support, supply chain needs, advertising, etc. It’s also a big reason more than 50 percent of franchised locations are owned by multi-unit operators who often times have an area development agreement.

Taking Area Development to the Next Level

More experienced area developers interested in even more rapid growth opt for master franchising. Although master franchisees are considered area developers, not all area developers are considered master franchisees.

Yes, master franchisees own an exclusive territory where they’re expected to open a specific number of units by a designated date; the difference is they have the rights to sell portions of their exclusive territory to sub-franchisees and act as their “franchisor.” Master franchisees are responsible for recruiting, training and supporting all sub-franchisees in their exclusive territory.

Many franchisors seek master franchisees in unchartered or unfamiliar territories like states or countries where the brand doesn’t have much recognition. Plus, the franchisor grows their business in a large market area but technically only has to manage one franchisee.

One of the most significant reasons master franchising is appealing is that the franchisee doesn’t need to use their own money to expand their business; the recruited sub-franchisees provide most of the necessary capital to achieve growth.

To Sum It All Up…

Although single-unit franchising can provide a good living, there’s much bigger money in multi-unit franchising. And if you’re a skilled business executive, area development or master franchising just might be for you. Either way, you’re set up for rapid growth and (hopefully) rapid returns, especially if you start here.

Published: April 23, 2019

Source: America's Best Franchises

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Bill Bradley

Bill Bradley

Bill Bradley is founding member and CEO of America’s Best Franchises, LLC.  Bill founded three financial services firms, Ocean Shores Ventures, Denali International and William Bradley Enterprises. In addition, to launching America’s Best Franchises in 2005, Bill orchestrated approximately 20 private equity transactions in excess of $31 million, and launched five specific purpose private equity partnerships.

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