A master franchise is an arrangement where the franchisee owns multiple stores with a particular franchisor. The franchisee then generally hires managers to run each store that they own, though they can also recruit sub-franchisees.
Because the scale of a master franchise is much larger than a typical franchise, most master franchisees have prior experience in the field.
The franchise lawyers at the Katz Law Group can help interested master franchisees understand the benefits, drawbacks, and additional risks that they can face, helping you make an informed decision in your particular situation.
What is the Difference Between a Franchise and a Master Franchise?
In a typical franchise, the franchisee enters into a franchise agreement to run a single store for the franchisor. The franchisee agrees to pay royalties and other fees and operate the franchise according to the terms set by the franchisor, in order to benefit from the franchisor's existing brand recognition.
In a master franchise, the franchisee agrees to run multiple stores – or take over a particular area – on behalf of the franchisor. The master franchisee, sometimes called a subfranchisor, can then hire managers for the stores.
Benefits of a Master Franchise Arrangement
For the franchisor, a master franchise arrangement is preferable when the goal is to enter new markets quickly because it allows someone local to make a lot of wide-reaching decisions while still staying within the bounds of the franchise agreement.
For the master franchisee, the potential reward is far greater. Rather than reaping the gains of a single store in the franchise, master franchisees can draw from numerous stores within their territory. They can also earn the initial franchise fee that any subfranchisees pay, as well as a portion of their royalties – often 50 percent of them.
Problems With Master Franchising
For interested master franchisees, though, the arrangement is not without potential problems, some of them considerable.
Most notably, the risk of financial loss when you have multiple stores is far greater than when you have just one. For example, if the franchisor's reputation takes a hit, your earnings will plummet.
This risk is especially problematic given that it takes far more capital up front to become a master franchisee than it does to become a normal one. You are not just buying into a single store – you are taking over control of all stores in a given territory.
Finally, master franchisees generally need to have extensive experience in business operations, sales, and marketing – preferably in the franchise world – in order to succeed, as they will have to guide their managers or subfranchisees through the challenges of running their own store.
Franchise Attorneys at the Katz Law Group
The attorneys at the Katz Law Group have nearly four decades of experience guiding interested franchisees and master franchisees through the process of starting a franchise and making it run smoothly. Contact them online or call their law office at (508) 480-8202 for help.