The Surprising Way a Master Franchise Works
The Master Franchise model is unique in franchising. It’s so unique only a few franchisors even offer it. In this post, I’ll explain what a Master Franchise is, the investment needed to become a Master Franchise holder, and more.
What Is A Master Franchise?
A Master Franchise is a type of franchising where a franchisor grants someone the rights to a large, heavily populated area. For instance, a franchisor may offer a Master Franchise opportunity for the entire San Diego metropolitan area.
Conversely, suppose the potential area encompasses several small cities. In that case, a franchisor could sell, say, Northwest Florida and make that one territory.
What Makes A Master Franchise Unique?
Besides the significant territory aspect of the Master Franchise model, a few other things make it unique to franchising, like absolute exclusivity.
A Master Franchise Holder never fears encroachment from other franchisees in the area because there aren’t any.
Master Franchisees Sell Franchises
When a Master Franchisee enters a market, one of their roles is to sell franchises.
Known as “sub-franchisees,” the Master Franchise holder is responsible for training them, providing accounts for them to service, and handling all the back-office functions, including billing and support.
This adds another layer of people putting the franchisees and the customers even further from the primary entity.
The Master Franchisee Collects Fees and Royalties
Generally, the Master Franchisee splits the initial franchise fee collected from the sub-franchisees with the franchisor. The same goes for the monthly royalties paid by the sub-franchisees. Most of the time, the split is 50-50. And if there’s financing involved, the Master Franchisee receives a portion of the profit from that.
How Much Does A Master Franchise Cost?
It’s not cheap to purchase a Master Franchise. Price-wise, the initial franchise fee is almost always based on population.
For example, Orlando, Florida, has a population of 328,000. And let’s say you’re interested in becoming the Master Franchise Holder of a fitness franchise in that central Florida city.
If the franchisor based their franchise fee on .50 cents per person, your initial cost would be $164,000. There’s more.
You’d need to secure office space, buy furniture, computers, and a phone system, hire staff to help you run your business, and have plenty of working capital. That could bring your total upfront investment to $350,000 or more.
With all that in mind, the investment may be worth it, as the income potential, mainly if the Master Franchisee can sell lots of sub-franchisees, can be significant.
One Big Drawback Of The Master Franchise Model
While this model has benefits, there are also some potential drawbacks.
For example, suppose the franchisor awards a Master Franchise to someone who is a below-average franchisee in terms of performance. In that case, it hurts the company’s bottom line. A lot.
That’s because it’s not one franchisee out of, say, 1000 franchisees that’s underperforming.
Instead, it’s one franchisee out of maybe 30 in the country who controls large geographic areas with massive revenue potential.
What Types Of Businesses Use Master Franchising?
Here are a few types of franchises that offer Master Franchise opportunities:
- Full-Service Restaurants
- Health And Beauty
- Commercial Cleaning
- Wait. Commercial Cleaning?
That’s right. Several franchises in the Commercial Cleaning space use the Master Franchising model. But OpenWorks does not.
That’s because of how our founder, Eric Roudi, decided to set up the business.
“The differentiator we went after was to use pride of ownership to our advantage. We capitalized on that notion by setting up individual franchises, where the owner is in charge of delivering the service to end users — customers — and also, as an owner, he or she is closer to the employees they’re hiring. This helped reduce workplace turnover to 40 percent from an industry average of 300 percent.”
So in our case, instead of awarding one Master Franchise to one person in one city, OpenWorks awards franchises to individuals who control their accounts on a much more personal level.
That means more people have an opportunity to go after The American Dream...and their dreams.
And, that means a customer doesn’t have a bunch of layers between them and the primary company. OpenWorks provides oversight for its franchisees. So much so that OpenWorks employees get to know the customers and the service providers working there to provide total quality assurance.
This franchise model isn’t for everybody.
Namely, it’s for people who want something big. Folks who want to build themselves an empire. Simply stated, if you want to be the CEO of what I call “a franchise within a franchise,” and have the responsibility of recruiting, training, and supporting dozens...or maybe 100 or more franchisees, a Master Franchise is the way to go.
What’s the real story?
In all my years of franchising, working 1:1 with close to 2000 prospective franchisees, I’ve run across maybe five who’ve wanted to build an empire.
OpenWorks offers its franchisees a good opportunity to make money, experience excellent support, and achieve their dream of business ownership. And these are the types of people—driven, professional, and motivated—who ultimately service an OpenWorks property with quality and care.
This article was written by The Franchise King®, Joel Libava. He’s a 20+ year industry veteran, the author of two helpful books on how to buy and research franchises, and a Franchise Ownership Advisor.
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