Let’s start at the beginning. What is a Master Franchise? It is when a franchisor grants an individual or organisation in a particular country, state or other trading region the exclusive right to develop a franchise network by sub-franchising within that territory.
With Master Franchising, the Master or sub-franchisor (region owner), signs an exclusive contract with the parent franchisor to market and manage all the franchises in a larger than normal geographic area. Although the master franchisor is also a franchisee, the master-franchisor has some special duties and obligations to the parent company, and usually in turn to the individual franchise owners within his Master territory. The upfront dollars to be involved in this arena are typically much more than the cost of an individual franchise.
A Master Franchisee has the developmental rights to a specific geographic area typically a State or country. The Master usually receives a part of the royalties and franchise fees paid by each Franchisee within that area. The Master, in essence, becomes somewhat of a sub-franchisor but with all the benefits and experience the parent Franchise Company has to offer. The Master Franchisee will usually open and operate at least one showcase location unit for income as well as for use as a training location. Master Franchise agreements are rare and when they are available they usually sell quickly. These agreements offer the Franchisees greater flexibility and benefits at this level.
Territory: This is usually a large metropolitan area, an entire state, or a country. It is an exclusive area right and will remain exclusive as long as the Master Franchisee meets the development schedule within the territory. Typically the Master Franchisee has to open a certain number of units each year.
The Role and Level of participation: The Master Franchisee will usually operate one unit themselves for a period of time to build their own level of skills and later perhaps using a manager in that location while devoting a greater proportion of their time developing and assisting other Franchisees within their market area. Very rarely is a Master Franchisee “every day hands on” in operating units in the longer term. They tend to spend more of their time operating as a business consultant or coach to their Franchisees to help them become successful.
In some senses, the Master Franchise owner/s can buy franchises at “wholesale” and resell them. That Master is usually responsible for recruiting the individual franchisees and providing all training and support they need, both initially and on an ongoing basis. The Franchisor usually provides a training program and manual on how to successfully recruit franchise owners to their system.
The Master Franchisee then shares in the initial franchise fees paid by the individual franchise owners and also in the ongoing income streams such as royalty and sometimes product income if applicable.
Franchise companies often select the Master approach in the belief it will result in more rapid system growth with less initial capital risk for the company. It will mean the master represent the franchisor with more passion and commitment than a salaried manager would do in much the same role.
Franchisors also choose a Master Franchise approach where the distances between the head office and the Master territory are significant and changes in time zones etc make a local representative more effective in their local business community.
Keep in mind the saying that “you’re only as strong as your weakest link.” A great Master can’t do anything about a franchise system that does not have a strong, viable business model to take their concept to market. Conversely, even a strong and viable business model can be invalidated by a weak or ineffective Master Franchisee. Great care must be taken in choosing a Master Franchisee.
Whether you choose a franchise with a direct or a master approach, you should be aware of the fact that the skills needed to provide effective franchise sales results are quite different from the skills needed to provide operational and marketing support to an operating business. One of the potential red flags in any master situation (or direct, for that matter) is when you find one person who is purporting to do both these jobs.