Becoming a master franchisee can be a fantastic way to develop your managerial skills and boost your income. But it doesn’t suit everyone. Here, you’ll find more information on what exactly master franchising involves, and the pros and cons associated with it.
Master franchising is on the up. According to the BFA, over a third of franchisees now operate more than one unit – a rise of seven percent since 2015. One of the biggest plus points of the franchise model is that it takes a thriving business and helps you replicate it quickly and simply. More and more investors are using the system to open several sites at once and managing various brand business locations across one region or country.
Before we get into the pros and cons of master franchising, let’s explore the profitable model in more detail…
What is a master franchise?
A master franchise is an agreement in which one party (the master franchisor) grants another (the master franchisee) the rights to set up and manage several businesses under their brand. Usually, a franchisor will give you the chance to control all the sites in one region or country. You may choose to operate some of the units yourself, or hire sub-franchisees to take control of individual businesses in your territory.
Generally, master franchising is used by large, established franchises to support rapid business growth in certain territories.
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Advantages of being a master franchisee
There are three main benefits of operating as a master franchisee:
1. Generate additional revenue
As a master franchisee, you’ll become the ‘middleman’ between the franchisor and your sub-franchisees. Your individual investors will pay you initial fees and royalties, and you’ll then pass on a percentage of them to your franchisor. It’s normally up to the franchisor to decide exactly how much you pay them, but there may be room for negotiation before you sign on the dotted line.
Once up and running, you’ll have to spend some of your income on providing sub-franchisee support, but there should be room for you to generate additional profits above these expenses. In short, the more franchise units you open, the more profit you stand to make.
2. Delegate your tasks
By hiring sub-franchisees, you hand over most of the responsibilities to do with running individual franchise units. This means you can free up time to concentrate on other things, whether that’s putting all your effort into overseeing operations in your territory or running another enterprise alongside it. Ultimately, you have the chance to focus on different aspects of business ownership and boost your level of expertise.
3. Gain more control and prestige in the business
If you own the rights to a brand in one region or country, you’re in control of a fairly large share of the business you’ve invested in. Of course, you must stick to the regulations set out by the franchisor. But managing multiple franchise units and overseeing operations across an entire region will give you a certain amount of prestige – and plenty of job satisfaction.
What’s more, if you ever decide to sell your master franchise territory and move on to bigger and better things, you’ll have a bank of knowledge and experience behind you. So, developing a master franchise territory should help you supercharge your career in just a few years.
Disadvantages of being a master franchisee
Like any business model, the master franchisee agreement has a few downsides too:
1. Recruitment can be expensive
When you’re hiring sub-franchisees to manage individual units across your territory, you’ll need to invest a significant amount of resources into the recruitment process. This includes meeting and interviewing potential candidates, providing all the relevant franchising documentation and running comprehensive training programmes to make sure new recruits have all the skills they need.
2. There’s no guarantee the franchise will succeed on your home turf
Every prospective franchisee needs to do their research to make sure their business has good potential to succeed in their chosen location. But for master franchisees, this process can be more difficult. You’ll be introducing a brand to a very large area, where market conditions could be vastly different to neighbouring states or countries.
It’s in the best interests of both you and your franchisor to make sure your master franchise territory has potential. So, make sure you work together to examine the market, including any competitors you might come up against.
3. The master franchise model can be complicated
As a master franchisee, you’ll probably be operating in a location with different financial, legal and cultural structures to the franchisor’s home turf. This can result in complex legal arrangements that are open to exploitation, confusion or misinterpretation. All master franchisors and franchisees should make sure they’re clued up when it comes to this issue.
The trick is to simplify the agreement as much as possible without losing its nuance or rendering it ineffective. As always, one of the best ways to minimise this issue is to do plenty of research, so you know your market inside out.
>> Read more:
- 5 Qualities of a Successful Franchisor
- 5 Reasons Why A Strong Franchisor-Franchisee Relationship Is So Important
- 5 Ways to Keep on Learning as a Franchisor
- Top 5 Mistakes To Avoid Making As A Franchisor
- What It Really Means To Be a Franchisor
- Ten Ways to Be the Best Franchisor a Franchisee Could Wish For
- Why it’s Important for Franchisors to Visit Franchisees.
Some of the most profitable businesses in the world have used the master franchise model to reach the lofty positions they occupy now. Used correctly, this business structure can be a powerful weapon in a franchisor’s armoury. But, as with any business decision, those involved need to do their research to make sure their venture succeeds.
Don’t worry – a well-prepared franchisor will be aware of the potential pitfalls of the master franchise agreement and try to maximise the benefits while mitigating against the risks. Gathering as much information as you can to make sure you end up with a good franchisor and enter a market with high potential is a great first step.
To read more about this business model and how to use it to your advantage, why not take a look at our master franchise articles?
Alice Tuffery, Point Franchise ©