Master franchise Opportunites: What are they and why you should consider investing
Although the basic concept of franchising is relatively simple, the model can become somewhat more complex when implemented in a real-life business setting. Different businesses use the franchise model in slightly different ways, with many adapting the basic principles of franchising to suit their needs. One way in which the franchise business model can be modified is by introducing master franchisees to the business’s hierarchy. Ideal for certain companies and certain situations, a master franchise can help the business to expand more quickly and more efficiently.
If you’re currently researching various franchise models with the view to becoming a franchisee, learning the ins and outs of how these various systems work is essential, get this free franchise guide. The more you understand about how franchising works, the easier it will be to select the right opportunity for your situation, your budget and your skillset.
What is a master franchise?
In its simplest form, a franchise consists of one franchisor and several franchisees. In most cases, the franchisor will have developed the business and got it to the point where it’s ready to expand. They’ll be responsible for recruiting franchisees and providing them with all the support and training their need to open their business and get it off the ground. The franchisee will pay their initial franchise fee and any on-going fees straight to the franchisor throughout their business relationship. This type of model is known as ‘direct franchising’ and is commonly used by businesses in a wide variety of industries.
Master franchising is an alternative form of franchising. Instead of the franchisor recruiting, training and supporting the franchisee directly, they recruit a master franchisee to look after a specific geographic area. In general, the master franchisee will pay the franchisor for the rights to develop their territory. They’ll then keep part or all of the initial franchise fees and royalties that are paid by the franchisees they recruit in the future. Often, the master franchisor won’t run a franchise themselves, instead, they’ll work to support the franchisees and provide them with the training and resources they need to make their ventures a success.
The benefits of a master franchise
From the point of view of a franchise, there are a number of benefits to recruiting master franchisees to their business. One of the most important advantages of this business model is that it lets businesses expand quickly. Once the franchisor has recruited a handful of dedicated, capable and enthusiast master franchisees to the business, they’ll go out and recruit their own sub-franchisees. They’ll then work to support and train these franchisees, enabling multiple new franchises to be set up simultaneously. This allows the franchise to expand a lot more quickly than it would be able to otherwise – something that can be a real bonus if the business is trying to corner a particular market or become a leader in their industry.
If franchises decide to go down the road of using a master franchisee to expand their operations, they’ll need to ensure that they recruit someone with strong management skills and a commitment to the brand. Master franchisees with limited skills or a poor approach to management could do the reputation of the franchise a lot of damage in a short amount of time.
One of the drawbacks for franchises choosing to expand through master franchisees is that they’ll forfeit a large percentage of the initial franchise fees and on-going royalties that are paid by the sub-franchisees. The exact amount paid by the master franchisee to the franchise will depend on the franchise agreement signed by both parties, but often the master franchisee will keep the majority of the money paid by their sub-franchisees. However, this is often counterbalanced by the large fees that master franchisees pay to the franchise in order to secure exclusive rights over their territory.
For businesses looking to expand abroad, recruiting master franchisees can be even more beneficial. Finding hard-working, skilled and talented local entrepreneurs to manage territories and navigate the country’s rules and regulations will give a company a real head start when it comes to expanding internationally.
Buying a franchise from a master franchisee
If you’re looking to buy a franchise business from a master franchisee, there are a number of things you need to consider before you go ahead with the business opportunity. For a start, it’s important to research the master franchisee just as thoroughly as you research the franchising brand. As you’ll work directly with the master franchisee when setting up and running your business, their professional history, attitude and approach will all have a big impact on the success of your venture.
Put time and effort into ensuring the master franchisee has the skills and the expertise necessary to offer you the help and support you need to get your business off the ground. It’s also a good idea to research their professional history as much as you can and to speak to other existing franchisees about the realities of working for the master franchisee. It’s incredibly important to ensure that you’re able to work professionally with the master franchisee, so make sure that you meet the person you’ll be working with before you commit to buying the franchise.
If you decide to go ahead with the purchase, you’ll find there are relatively few differences between direct franchising and master franchising. The majority of your communication will be with the master franchisee and they’ll be responsible for your training and on-going support. In many cases, you won’t have a lot of interaction with the franchise, working closely with the master franchisee instead.
Becoming a master franchisee
As well as offering a range of benefits to franchising brands, this innovative business model can be very advantageous to the entrepreneurs who become master franchisees. As a master franchisee you’ll be buying into a business with a proven track record and an established reputation. You’ll be able to benefit from both as you work to set up your network of franchisees.
When you recruit sub-franchisees to the business, you’ll receive a percentage of their initial franchise fee. The more you recruit, the higher your profits will be. You’ll also receive a percentage of the on-going fees paid by each of the franchisees you recruit, giving you a sustainable income from the business.
As you’ll be working closely with these sub-franchisees, it’s essential you put the time and effort into finding the right people for the job. After all, the harder they work and the more profitable they are, the higher your income as a master franchisee will be.
Although becoming a master franchisee can be very profitable, it’s not without its risks. Most franchises ask for considerable investment from their master franchisees and you’ll be partially responsible for the success of their venture. To give yourself the best chance of seeing a good return on your investment, make sure you invest in a company with a proven track record, a good business model and the potential for future success.