Master Franchising

There are two primary ways in which franchisors can guide and support their franchisees: direct franchising and master franchising. The first mode of franchising involves direct communication between the franchisor and franchisees. The second one involves indirect communication between the franchisor and franchisees through an intermediate figure, the master franchisee.

The master franchisee essentially takes on part of the role of the franchisor. He or she can only play this role in a specified territory. The role entails recruiting the franchisees and giving them the guidance, training and assistance they need. The master franchisee also receives the franchisees’ initial fees and royalty fees. He or she might have to pass some of these earnings to the franchisor if that is what their agreement indicates. In addition, the master franchisee has to pay a large fee to the franchisor at the beginning of their agreement.

 

The Characteristics of Master Franchising

 

Master franchising is advantageous for a number of reasons. These reasons could ultimately convince some to sign up for the position of the master franchisee. For one, the master franchisee does not need too much cash to begin with. Secondly, he or she can work as an independent business agent. This makes it is an attractive proposition for the up-and-coming entrepreneur. Master franchising sets the master franchisee right in the geographical vicinity of the franchisees. Hence, the master franchisee can communicate more efficiently with the franchisees and assist them more readily than the franchisor, who is located in another part of the country or in an entirely different country, can.

Unfortunately, master franchising is also characterized by disadvantages. These include the fact that the master franchisee cannot expand beyond the predetermined territory. Additionally, the contract that the master franchisee signs with the franchisor is typically a long-term one. Hence, if it turns out to have been negotiated to the disadvantage of the master franchisee, it can be a long time before he or she has the opportunity to renegotiate its terms or end it to pursue another endeavor. Master franchising is also beset by legal problems, likely due to the added layer of complications and inefficiencies that can only be expected with the introduction of an intermediate figure into the franchising process.

The franchisor that is keen on the rapid growth of the franchise but does not want to risk much of his or her own initial capital will typically opt to contract a master franchisee. If the franchisor contracts a master franchisee with the right skills and is able to match these with excellent resources, success is sure to follow.