If you investigate enough franchise opportunities, you’re bound to come across one with a master franchise strategy. Here’s an explanation of the concept, and a review of its implications for you.
While many franchising organizations work one-on-one with their franchisees (i.e., direct franchising), others will enlist the assistance of a master franchisor. The parent organization will contract with an individual or business entity to deliver services to franchisees in a specified territory. Typically, the master franchisor’s assigned area will be several states, one state or even a single major market.
What are the advantages to the master franchisor? They typically pay the franchising company a significant upfront fee in exchange for the rights to develop the territory. The payoff comes down the road. They retain most if not all of the initial fees and royalty payments paid over time by the individual franchisees who enter their territory.
What are the advantages to the franchising organization? They often employ the master franchise strategy with the idea it will involve less initial capital and result in more rapid system growth. The master franchisor takes on the job of recruiting new franchisees and providing the initial training and ongoing support they need, thereby relieving the network of these responsibilities.
As for a potential franchisee, there’s no particular advantage or disadvantage to either strategy, but you’ll need to conduct due diligence of both the franchise network and the master franchisor.
Consider that the best efforts of even the most competent master franchisor can’t overcome the shortcomings of a franchise system with a weak business model. Conversely, the strengths of a proven and viable franchise model can be negated by an inattentive or ineffective master franchisor.
So, what’s an entrepreneur to do? Here are four outcomes.
1.If you’re excited about both the franchise model and the master franchisor, you’ve identified a potentially winning situation that’s worthy of your further consideration.
2. If you have confidence in either the franchise network or the master franchisor but not both, it’s probably best that you look elsewhere.
3. If you identify the franchise company as being the weak link, you should bypass the opportunity and seek a different one.
4. If you like the franchise model but lack confidence in the master franchisor, you can approach the parent organization and discuss your opportunities in another territory. Of course, this assumes you’re not too closely wedded to any one city or region and are willing to follow your dream of business ownership to a new and more promising territory.
A parting comment on master franchisors.
If you’re interested in pursuing a franchise ownership opportunity with Allegra, you’ll work directly with us. Our network is not looking to expand in the master franchisor business model.