What are Master Franchises and What Do They Do

The average franchise system usually consists of a single franchisor in a franchise agreement with one or more franchisees. At that point the franchisors business has been successfully developed in order to expand their model. The franchisor provides the franchisee with support, training, as well as all the business material required to launch the brand with their best foot forward. In return the franchisee pays an initial franchise fee and ongoing royalties to the franchisor for the legal use of the brand, development, training and support. Within the franchising realm, entrepreneurs also commonly ask the question of “what are master franchises and what do they do?”

Master franchising goes one step further than the average franchise system. Rather than the franchisor directly recruiting the franchisee, master franchises involve a third party to act as the intermediary in a new territory. The master franchisee (or sub-franchisor) bares the responsibility to recruit sub-franchisees in their designated territory.

For a more precise definition; a master franchise is a franchise agreement where the franchisor grants a third party (the master franchisee) the right to use the franchisor’s trademark, systems, and processes to operate and develop a network of franchisees in a specific geographic area or region. In essence, the master franchisee becomes a mini-franchisor responsible for selling and supporting franchisees within their territory.

Under a master franchise agreement, the master franchisor grants to the master franchisee a specified area where the master franchisee has the right not only to open franchise units itself, but also to “sub-franchise” to third parties. Franchise Administration can assist with the development of a compliant master franchise agreement.

A master franchise agreement generally includes:

Territory Rights 

• The franchisor grants the master franchisee exclusive rights. The master franchisee can develop and operate franchises within a specific geographic area or region. 

Investment & Royalties 

• The master franchisee must invest in and develop the market for the franchisor’s brand. The master franchisee generally receives a percentage of the franchise fees and the ongoing royalties collected from franchisees within their territory. 

Training & Support 

• The master franchisee handles training and support to their franchisees. They act as the primary point of contact for franchisees in their territory, to provide them with ongoing guidance and assistance. 

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