What is a Master Franchise?
And is it a Good Investment?
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Master franchising is an arrangement where the franchise company provides rights and responsibilities of their brand within a given geographic territory. Master franchise rights can be for an entire country
or for a single city. Essentially the master has purchased the rights to develop that particular franchise brand within their allocated territory. The majority of franchises have used some form of master franchising, or area developers to help grow their brand.
Master franchising is most often used for international expansion. For example if an existing USA based franchise wishes to enter another country, they could sell the master franchising rights to someone in Canada, or anywhere in the world. The master franchisee in that country essentially becomes a franchisor themselves and will begin to develop and sell unit franchises within their territory.
Master franchising is generally beneficial for both parties - here is why
1. The Franchisor benefits with an immediate infusion of cash from the sale of the master franchise, and now has someone in the region with an intimate understanding of the economic, business, demographic and cultural landscapes within that country or city.
2. The master franchisee benefits with the strength of the brand, franchisor support, and will typically share in the ongoing royalties and franchise fees from locations in their territory.
What is the typical split in a master franchise relationship? We have agreements all over the board however the most basic is a 50/50 split
Lets look at a typical master scenario. Our master franchisee buys master franchise rights for Ontario, Canada $200,000. They then advertise for franchisees, as well as possibly opening a unit location of their own. It should be noted not all Master agreements require you to actually open a franchise yourself, some are purely a development role. Either way the master starts to speak with potential franchisees and Once they have identified a qualified candidate they assist them in opening their own location.
If the franchise fee is $40,000 the master will receive $20,000 in a 50/50 split scenario. So in this model they would need to sell 10 locations to break even.
Most of the potential revenue however is at the back end from ongoing royalties from franchisees in their territory. If you have 10 locations operating in your territory and are receiving 50% of all their royalties, that can become a solid income stream and and it becomes mostly passive after your locations are operational.
Every franchisor has varying expectations and responsibilities for the master franchisee, so pay particular attention to what is expected of you and that it is something that aligns with your goals and background. Also pay attention to the length of the agreement and what happens after the agreement has expired.
With the right brand and the right person master franchising can be a mutually beneficial opportunity.
Franchise.city works with over 600 National franchise brands, many of them with an interest in master franchise expansion in the USA, Canada and internationally. To learn more call or email us today. And don't forget to follow us on social media for all the latest in franchise opportunities.