Although the basic principles of franchising are well known, the term ‘master franchise’ is far less widely understood.
A master franchise licence is a licence that gives an individual or company (the master franchisee) the right to act as a franchisor in a particular territory. The territory would normally be a country but could possibly be a region of a country or a group of countries.
In effect, the master franchisee acts as a sub-franchisor who administers the particular territory on behalf of the franchise brand owner. The master franchisee will normally market franchises to new franchisees within the territory. The master franchisee is also responsible for the initial training of franchisees and the continuing support for all the franchise operations within the territory.
You might expect that the cost of a master franchise would be very much higher than the cost of a normal franchise. However, the cost depends on the nature of the franchise operation and the market sector in which it operates. For example, it is currently possible to buy a UK master franchise within the building refurbishment sector for around half the price of just one fast food restaurant franchise.
In most cases, a master franchisee can expect to pay the franchise owner a significant initial fee for the privilege of obtaining an exclusive contract over a territory. In return, the master franchisee is likely to retain a large proportion of the initial franchise fees and royalties paid by the individual franchisees, for the duration of their franchises.
Running a master franchise requires a different skill set compared to running an individual franchise. Experience of corporate finance and company management are much more important for a master franchisee than they would be for somebody running a single fast food outlet or a mobile mechanic’s franchise. So, anybody considering becoming a master franchisee should be confident that they have the requisite skills. Several major franchises in the UK are managed by master franchisees.
A master franchise gives the right to act as a franchisor in a particular territory;
a master franchisee acts as a sub-franchisor on behalf of the franchise brand owner in a defined territory;
the cost of a master franchise very much depends on the type of franchise operation on offer;
the skills required to run a master franchise successfully may differ significantly from those required to operate most individual franchise operations.