What is a master franchise?

Posted by Tom Scarda, Certified Franchise Executive on Aug 21, 2019 1:39:09 PM

In Multi-unit franchise

What Are Master Franchises, Area Development, & Multi-Unit Franchise Agreements?

Owning multi-units in franchising is a great way to build wealth. Case in point, the Dunkin-branded NASCAR is owned by a franchise owner, not Dunkin corporate.

Here is an explanation of mutli-unit ownership, master and area developer franchise opportunities. If you think you can fit the mold of who the companies are looking for, reach out to me to find out what's available. Sign up for a time to talk here: GetWithTom.com

Master Franchise Agreements & Licenses

Master franchising agreements (also known as Sub-Franchise agreements) offer the opportunity for an individual (Master Franchisee) or corporate entity to purchase the rights to sub-franchise a franchisor's business concept within a specific territory, region, state or country. These rights are secured by an initial franchise or license fee charged by the Franchisor. This initial investment may vary in size depending on a number of factors, including the size of the territory purchased.

Generally, master franchising agreements not only give the Master Franchisee the rights to offer and sell individual franchises, but also the rights to collect a predetermined percentage of the franchise fees and royalties generated by each unit sold in a designated territory. The size and percentage of these fees will vary depending on the particular agreement; but in many agreements the fees are often split between the franchisor and master franchisee. This is a great way to build long term wealth.

Depending upon the agreement, the master franchisee may also be required to open a certain number of units in a specific time frame or schedule, and may also be required to open and operate one or several units of their own. In general, Master franchisees will also be responsible for providing a certain level of ongoing support (training, recruiting.) and services to the franchisees within the designated territory.

Franchise Area Development Agreements

In general, franchise area development agreements offer the opportunity for an individual to secure the rights to open and develop a specific number of units in a designated territory, and to solicit prospective new franchisees for the Franchisor in that territory. Unlike master franchise agreements however, the area developer does not actually sell or award new franchises as this responsibility remains solely with the Franchisor.

Because the Area developer's responsibilities are not as broad as Master franchisees, depending upon the agreement, they sometimes do not receive or share with franchisor any of the royalty fees generated by each unit opened in the territory. More often than not however, the area developer will receive a portion of the initial franchise fee as compensation for recruiting a new franchisee.

Franchise Multi-Unit Agreements

Multi-unit franchise agreements in general allow a franchisee the rights to operate more than one franchise in a defined geographic area where population demographics will support multiple units. In general the franchisor will limit the number of units a franchisee can open from anywhere from to 2 to 5 units, however some franchisors may offer the opportunity to open much larger numbers of locations.