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Becoming a Master and/or Regional Franchise.
Becoming a Master and/or Regional Franchise.
By Elaine Rose on September 14, 2009
Franchisors can choose one of two options while franchising their business. The first option is for the franchising company to provide support and services to individual franchisees directly whereas the second option is to expand via a master (or regional as known internationally) franchise. But what exactly is a master franchise?
Master Franchise
When a franchise chooses to expand via a master franchise this means that the franchising company has contracted with an entity or individual to provide services to a franchisee within a specified territory. A master franchise allows the franchise company to expand into a specified territory, usually a major market or in one or more states or nationally.
The key difference between an individual franchise and a master franchise is that an individual franchise only has the responsibility of looking after their own business whereas a master franchise is responsible to expanding the number of individual franchises in addition to looking after their own business within the specified territory and/or region.
What are the benefits?
- Long term growth - The initial investment is higher than a traditional franchise. But the franchisee needs to understand that even though in the short term it may seem like a master franchise is a more expensive option in the long term a master franchising licensee can lead to greater profitability of the franchisees business as opposed to a traditional franchise.
- Greater income - Greater long term growth in not the only benefit. Aside from the expense incurred on account of the initial fee that is paid to the parent franchising company the master franchise earns a substantial income by keeping a share of the upfront fees as well as the ongoing royalty fees that individual franchisees pay.
- Products or services - Depending on the kind of business the master franchise also has the opportunity to earn a certain percentage of the profits on a product that the business is distributing. In addition, franchisees could need certain additional product or services to run their franchise; these can be sold at the master franchise outlets that can then become an additional source of income.
Why buy a Master Franchise?
Master franchising provides you with the benefits mentioned without the cost of having to develop and build your own concept from scratch. You have access to an already established brand name, a proven track record to back up your business reputation, and a partner in the form of the parent franchising company to provide you with support, business expertise and up to date systems and technologies. As a traditional franchise you have restricted income since you offer the product or service directly to only your customers whereas a master franchising licensee gives you the opportunity to generate sales through your various franchising outlets including your own.
Aside from these here are some of the other reasons Master franchising could prove to be a fruitful initiative:
- Build the company to be run by your employees – When you start out the business you will have to initially build it up. As the business grows larger you can employ an administrative assistant, a sales manager, a trainer and maybe even a general manager. Eventually once the business is set up you can back away completely and live off the profits, leaving the business to be run by your employees.
- Exclusive territory rights – Only you and your franchisees have the right to operate within your designated territory.
- More freedom than an individual franchise – You help to set up standards for the franchises within your designated area.
- Low initial overheads – Usually you don’t expand into a large business directly and don’t have large overheads that come with having to maintain a large office and staff hence saving on those overhead expenses.
What to look for?
Yes, master franchising can be a wonderful way to franchise but there are certain things that you should look for. When looking for any kind of franchising opportunity you need to make sure it is the right fit for you, master franchising in no different. Make sure when you are looking for a master franchise it is in line with your interests and goals.
Do your research on the franchise. Visit as many franchise outlets as you can so you can be sure that the franchise you are investing in has a solid foundation. Lastly interview as many master franchisees as you can, this will enable you to understand what possible challenges you could face.
Once you have assessed the business you stand to make a more informed choice and thus are able to enjoy the various benefits that master franchising has to offer.