Should You Buy into a Master Franchisee System?

Not all franchisees are considered alike. While a common stereotype of a worker who dreams of one day owning a single business unit of his or her own is often what we think when we hear franchising, there’s another type on the rise. The multi-unit owner. In fact, in the last decade, the industry as a whole has seen a major shift toward multi-unit ownership, now representing 53 percent of the franchise units in the U.S., according to statistics compiled by FranData. And some of these multi-unit owners are known as Master Franchisors. Sounds pretty regal, right? But what does the term mean?

The simplified definition of a master franchisor is someone who has been given the brand authority to develop new markets. Master franchising is a deal struck, in which the master franchisee essentially becomes an extension of the brand itself–a mini-franchisor, if you will, for a defined territory or area. It is the master franchisee’s responsibility to then recruit, train, and provide brand support to each new franchisee they’re able to sign up.

It’s an aggressive expansion strategy for franchise brands. And while it’s more commonly seen among franchisors wishing to expand their operations on an international level, it’s not unheard of in the U.S. for brands seeking rapid growth. What’s the trade-off for being given such awesome responsibility? A stake in the game. Typically, a master franchisee gets to pocket a decent percentage of any initial franchise fees, including recurring royalties. While the terms vary by brand, it’s typically 50 percent. Other conditions stipulate that the master franchisee agrees to a specific development schedule, with targeted sales goals in which he or she benefits once they’re met or exceeded.

Is this how franchisee empires are built? In a word, yes. But it’s not for everyone. Master franchisees are sought specifically for the elevated talent they bring to the deal. Previous franchise ownership and experience is both important and vital. As are the many “connections” that said master franchisee typically has on hand. This include beneficial contacts in banking/funding, real estate and other business-related expertise. In essence, the master franchisee for a specific brand is a true corporate partner in the deal.

Master franchisees, whether expanding an operation abroad or domestically, have one meaningful goal–to expand a territory quickly. The benefit to the franchisor is that it isn’t their responsibility to add significantly new infrastructure as part of this expansion effort. That part is, in effect, outsourced to the master franchisee—making this individual an important part of the brand’s strategic growth.

But with much responsibility comes much concern. Just like much risk brings much reward. The pressure to recruit, sign and deliver new franchisees into the system can be a stressful undertaking, depending on the terms. But because the master franchisee has a stake of their own in the outcome, quality over quantity goes without saying.

In a way, master franchising is a strategic gamble for emerging franchise brands. In a competitive business environment with thousands of franchise concepts to choose from, it’s one way for a brand to distinguish themselves when growth and expansion are the two biggest business goals.

Like we said, master franchising isn’t for everyone. It’s a proposal and a deal offered amidst special circumstances. But done correctly, the tactic can drive territory expansion into domination quicker than the traditional build-out of a franchise brand.

If you’ve got the capital, the connections and the drive to succeed on an accelerated business curve, you may want to investigate which brands are currently employing a master franchising strategy to beat the competition.

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Apr 25, 2018