Most people don’t understand much about franchising, let alone what a master franchise is. However, implementing a master franchise into your business model can improve your company’s operational efficiency, ensuring you take your business to the next level.
What actually is a master franchise?
Essentially, it’s a co-marketing venture. It’s a franchise contract, where the franchisor licenses the rights of the business in a certain area to a budding entrepreneur. The entrepreneur is generally already running their own franchise. This becomes the master franchise, and they act as the head office of that company for the designated area. The master franchisee determines where all the sub-franchisees will be built in their area, and provide support and training.
Often, the types of businesses implementing a master franchisee are fast food restaurants, real estate agents and convenience stores.
What does a master franchise have to do?
A master franchise provides training, support, marketing tools and an effective business model to a franchisee. Furthermore, they determine the appropriate locations for franchisees. In return, the franchisee broadens the company’s brand, strengthening it in a certain area. The master franchise has the right to third-party operations in the area, with their primary aim being the development of the brand.
What’s the difference between the franchisor and the master franchisee?
The franchisor is still responsible for the overall management of the business. Furthermore, they are responsible for overseeing all the master franchisees, and ensuring that they’re developing the brand.
The master franchisee is solely responsible for their designated area. They supervise and assist their franchisees, however, they are only concerned with their area. The master franchisee doesn’t have to deal the overarching management and financial side – they just have to ensure the business is thriving in their area.
What are the advantages?
A master franchise allows quick development in their area. It provides a competitive advantage for the brand, as the master franchisee understands the area and their needs. For example, imagine a franchisor develops 10 master franchises across the state. Each master franchisee then develops 10 sub-franchisees in each area. This develops the business at a faster rate, with higher quality.
The master franchise receives additional royalties for their duties. The financial benefits are significant, allowing the entrepreneur to further their career.
What are the disadvantages?
Disadvantages will naturally occur with a master franchise. These include overly long contracts and legal issues, as the franchisor entrusts someone else with the management of their business. If the entrepreneur entrusts the wrong person, it can be harmful to the brand.
Furthermore, the agency costs are a disadvantage to the franchisor. Their brand will inevitably increase. However, the master franchisee will receive a significant amount of the royalties, meaning the franchisor receives less.
Final thoughts
A master franchise has the potential to take your company to the next level. An understanding of the advantages and disadvantages is crucial to making an informed decision when handling the structure of your business. It is recommended to discuss the different options with a franchise lawyer before altering your business structure.
