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What is a Master Franchise?

Posted by Carolyn Dufton on 19 May 2010
What is a Master Franchise?

A Master Franchisee can also be known as a sub franchisor or Master franchisor. Whichever term you choose to adopt, be consistent with the usage in your organisation to avoid confusion.

Master Franchising allows people or corporations to purchase the rights to sub-franchise within a certain territory. This allows the Master franchisee the opportunity to grow a viable business in a fairly short timeframe.

The Master franchisee should enter into this role with both sales and management experience, since he or she will not only operate a unit, but will also be responsible for the smooth operation of several other locations as well. Additionally, a Master franchisee holds the responsibility of obtaining and educating other franchisees. He or she needs to be available for continuous support for the other franchisees.

Here's how it works:

A Master franchisee helps the overall franchise company by recruiting franchisees to open units within a specific territory. The Master franchisee purchases this specific territory from the franchisor and then shares in the revenue from franchises in that territory.

For example, your Master franchise agreement with the franchisor may state that you will receive 50% of the franchise fee and 50% of the royalty fees for each unit sold within your territory. You will be responsible for recruiting and training other franchisees. You will also need to be available for ongoing support.

NB this is not a percentage we are suggesting, we are merely using this figure as an example.

Advantages

Purchasing a Master franchise offers an investor the opportunity to partake in a business concept that has already been fully developed. In addition, by partnering with the larger entity, the Master franchisee receives support and expertise as needed from the franchisor as well as access to new systems, products and general business initiatives.
The Franchisor is able to relinquish day to day responsibility for regional areas as determined by the Master Franchisee's territory.

Considerations

  • Serious attention should be paid to the financial viability and implications of engaging a Master franchisee. Many franchise organisations do not have the financial capability to support an additional tier of franchisee.
  • Master franchisees can have responsibility for a region, for a state or for a country. Territory allocation should be approached with caution.
  • Franchisees should be consulted before introducing a Master Franchisee to their region. If a consultative approach is not adopted, it is common for franchisees not to co-operate with their new representative.
  • Franchise agreements should be adapted and changed to reflect the new reporting and responsibility structure.
  • The skill set needed for the Master Franchisee is far more extensive than the franchisee requirements. The recruitment process should be stringent.
  • Appointing a Master Franchisee should not be a process that is implemented without serious consideration to the long term impact. The appointment of an unsuitable Master Franchisee can have disastrous results on a franchise network.

FAQ's

  • Is it advisable to appoint a Master franchisee from outside the network?
  • Would an existing franchisee be an ideal choice for a Master franchisee?
  • How are a Master franchisee's royalty fee and other payments calculated?

Structuring a Master franchisee tier should be done in consultation with franchise experts who will assist a Franchisor in the brainstorming of creating a workable model.

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Author: Carolyn Dufton
About: Carolyn Dufton Dip. Bus (Franchising) heads the team as the owner and manager of franchisingplus. Carolyn has a wealth of small business experience, and many years of hands on franchising experience.
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Tags: Franchisee Franchisor Franchising

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