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Franchise Resource Center

Master Franchise Defined

Master Franchisee structures can be quite lucrative. Master franchising allows people or corporations to purchase the rights to sub-franchise within a defined territory. This allows the master franchisee the opportunity to grow their business in a fairly short time-frame. Franchisors that use this system of usually grow very rapidly, however due to management concerns not every franchisor chooses to offer master franchising opportunities.

Here's how it works: A master franchisee assists the overall franchise company by recruiting franchisees to open units within a specific territory. The master franchisee purchases a territory from the franchisor and then shares in the revenue from franchises in that territory. For example, a master franchise agreement may state that the master franchise will receive 50% of the franchise fee and 50% of the royalty fees for each unit sold within their defined territory. In return fees, the master franchise will be responsible for advertising, recruiting and training of the other franchisees within that territory.

Advantages of a Master Franchise

This type of investment offers the 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 and technologies. Although the up-front costs are a bit higher than a single franchise, obtaining a master franchise license is the precursor for more extensive growth potential than a traditional franchise. Also, the master franchisee earns income by keeping a share of the up-front fees as well as through ongoing royalties that individual franchisees pay. Sometimes the master franchisee can also earn an override on a product that is distributed.

Complete Your Research

Because of the impact a master franchise can have on your brand, considerable thought has to be given to the minimum personal business and financial strength a master franchise must have to qualify for the opportunity. Additionally minimum financial and developmental performance requirements should be well defined to maintain the relationship. Clearly a master franchise agreement has to be written carefully to protect the franchisor from the occasional inappropriate master franchise selection.

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