For Franchisees

Are Master Franchises Something to Pursue?

By 01/06/2017 August 16th, 2018 No Comments

Hsien Naidu:

Should you buy a master franchise if you have the opportunity?

The answer depends a lot on your background. If you have a great deal of experience on the franchisor side of the industry, like brand management, operations management, marketing expertise, people skills it might make sense. But if you have never been a franchisee, or have no experience in franchising at all, then it probably does not. Being a master franchisee looks like a relatively simple role. But it is a lot like being a mini franchisor. To be a successful master franchisee requires significant resources in terms of business planning, operations expertise, financial capabilities and people management skills.

In most master franchise systems, a master franchisee often only owns a few outlets and starts building the franchise network by recruiting individual franchisees to purchase single or multiple unit rights and run the outlets.

The master franchisee often is the one who trains the franchisees and gives them operational assistance. He or she is frequently compensated from royalties and franchise fees paid by the individual franchisee, the same way that a franchisor makes its money.

Potential franchisees often confuse master franchising with area development. Area franchisees are given the rights to establish a certain number of corporate outlets in a defined territory, like a city or state, that no one else can develop within a fixed timeframe. The role of an area franchisee is to focus on developing their own outlets in their given territory rather than the right to recruit, build and manage sub franchisee.

When franchise systems are first getting started, their owners sometimes use master franchising as a way for franchisors to increase their brand presence and value proposition.

Master franchising allows the franchisor to get access to other operators with experience in developing franchised establishments in new and unfamiliar territories. By offering comprehensive training to the master franchisee, the franchisor also receives help from their master franchisee in training and support the sub franchise network. The help that master franchisees provide for recruiting, training and supporting the individual outlet operators helps franchisors to grow their systems more quickly.

Successful master franchising requires strong knowledge of the industry in which the franchise system operates as well as the geographic locations where the franchisor is selling outlets. To sell the opportunity to join a franchise system, it helps to understand both the market and the product.

Acquiring the rights to a master franchise takes considerably more money than buying an individual location. The master franchisee must pay for the territory and the cost of establishing prototype locations that can be used to demonstrate the value of the system to potential franchisees. On top of that, the master franchisee is required to pay the cost of marketing the concept to franchisees. This means the master franchisee needs to be in a financially strong position to implement the roll out of the franchise to reap the rewards from the revenue generated from sub franchise, royalty fees and product supply. However, when properly executed, the revenue that is generated from the rights of a master franchisee can be extremely rewarding and can bring exponential value to the master franchise operator.

Top Franchise Asia

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