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What is Master Franchising?

One way a franchise can grow and expand is through so-called master franchising. But what does this actually involve? In short, it is a model in which the franchisor, i.e., the parent company, enters into an agreement with an individual or company (the franchisee), allowing them to expand the franchise within a specific region or market.
Thus, a hierarchy is created with the franchisor at the top, followed by the franchisee responsible for a specific region, who can then recruit other local franchisees for whom they would be accountable.
Each franchisee usually enters the business only after paying a fee to the franchisor, which reduces the franchisor’s risk and allows for rapid expansion into a new market. However, this approach is not without potential drawbacks, so it’s important to carefully weigh the pros and cons of entering such a business. It’s a good idea to contact a franchise consulting agency, but if you’re only interested in the most important information about this type of business, you can find it in the following paragraphs.

How Master Franchises Work

As we mentioned earlier, the franchisor signs an agreement with the franchisee (master franchise), who then becomes the manager for a specific territory. This franchisee’s task is to ensure that the franchisor’s brand grows and expands within the market they are responsible for.
Therefore, it is necessary to find additional franchisees who are willing to open individual outlets. The role of the person or company holding the franchise for a specific territory can vary greatly and will be defined by the aforementioned agreement between the parent company and the regional manager.
This can include training additional franchisees, assisting in finding locations for their outlets, helping negotiate lease agreements for necessary properties, and much more. In short, it involves providing any support that franchises in the territory might need.
This also means that the regional manager does not interfere in the day-to-day operations of each franchisee in their territory but must ensure the conditions for the brand’s growth and development. This fact is one of the main advantages of franchises.

Advantages of Master Franchising

Master franchising has many advantages for all parties involved. The franchisor gains the ability to quickly expand into a market where they are not yet present, without needing to invest in new employees to oversee it. Additionally, since entering this type of business usually requires an upfront fee, the franchisor also benefits from a short-term increase in cash flow.
From a logistical perspective, this can also be a smart move for the franchisor, as the company does not have to spend resources managing a specific territory—everything is delegated to the regional manager and everyone below them in the hierarchy.

Potential High Revenues

On the other hand, the holder of a master franchise for a specific territory gains exclusive rights to a brand that is already recognized globally, giving it significant growth potential. A capable entrepreneur can recoup the initial investment in a short time and then continue to increase profits, as each additional franchisee they bring in generates new income.
Furthermore, the regional manager usually does not need to hire a large number of people, and in some cases, a single person can handle everything. Therefore, there is no need to heavily split revenues, and after the initial investment, operating costs are relatively low. The number of clients they need to focus on is also limited – their only clients are the end franchisees, and the goal is to provide them with the best possible conditions for their work, allowing the manager to fully dedicate attention to each client.
Additionally, the master franchisee for a given territory enjoys multiple sources of income. Besides sharing the initial franchise fee with the franchisor, the regional manager receives monthly royalties, which can amount to up to 5% of the revenue generated across their entire territory. There are also extra benefits when opening a pilot location, often paying significantly lower fees—sometimes even half of what other franchisees pay—allowing them to test and showcase best practices.
Another significant advantage of master franchising is that it provides access to an already established system. Large corporations that use this franchising model usually already have successful master franchises in various parts of the world, whose experience can serve as a valuable guide. A new master franchisee can apply proven principles and practices, ensuring stable growth and development of the brand in their territory, reducing risk, and accelerating success.
Once the brand expands within the designated territory, the value of the company managing that market will be many times higher than the initial investment, and its owner will always have the option to sell it.

Here’s the English translation: --- Disadvantages of Master Franchising

However, master franchises can also have some drawbacks. This primarily relates to the initial investment required to obtain the rights to represent a franchise in a given territory. This can be a significant challenge for someone entering the business alone, as the amount is usually quite substantial and must be paid just to get started.
Additionally, an in-depth knowledge of the local market is required, as well as excellent managerial skills, in order to develop strong franchise relationships and to gradually increase the number of end franchisees.
However, there are also risks for the franchisor, as in this case they are handing over control of a market to someone else. This can lead to inconsistent product quality, which may harm the brand’s reputation. In addition, a large number of end franchisees can pose a challenge when it comes to ensuring that all terms of the agreement are being followed. Simply put, some people might try to act independently, and it is even possible that they could attempt to start their own franchise using the knowledge provided by the franchisor.

Conclusion

Master franchising offers many opportunities for those who choose to enter this business, as the potential profit can be significant if things develop in the desired direction. However, the initial investment is substantial, and certain skills are required to expand the network of franchisees across a given territory.
Still, if successful, a master franchisee for a given territory can secure multiple sources of income and significantly increase the value of their company. With established systems like those of large brands, such an entrepreneur has everything they need to achieve their desired goal.

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