The Master Franchise Option

This is, perhaps, the most-used and the most often-recommended option.

Under a Master Franchise Agreement, the franchisor grants the Master Franchisee the rights to operate in the chosen market in exactly the same way as the franchisor operates in its own domestic market.

This means that rather than replicating the operational system in each individual unit, (which is the basis of franchising) the Master Franchisee replicates the operating system of the franchise as a whole. Thus, the role of the Master Franchise is to find, recruit, train, monitor, motivate and support the individual franchisees in their agreed territory leaving the original franchisor only to monitor and support the Master.

Key advantages to this method:

  • The Master, who will typically be a native of the target country, will be already well-versed in the language, laws and culture of the country and will use that knowledge to supplement the franchisor’s knowledge of the system.
  • They may already have a management structure in place from an existing business as they may have their own or other franchised brands already operating in the territory
  • They are likely to have, or have access to, the substantial finances which will be required to develop the brand in the new territory
  • The original franchisor will benefit from a substantial Initial Franchisee Fee which will largely be made as an up-front payment when the Master Franchise is granted.
  • The original franchisor’s management input will be limited other than as a monitoring and advisory role
The key disadvantage in this option is that the recurring franchise fees are unlikely to be substantial until the Master Franchise is well-established. This is because in this option the original franchisor will only receive a percentage of the ongoing fees paid to the Master eg 10% of the 10%, ie 1% of the recurring Management Services Fee This is, however, typically offset to some extent by the Initial Franchise Fee and the fact that, as the franchise grows, the subsequent recurring fees will increase with little or no effort on the part of the original franchisor.

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