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In
general the individual or master franchisee’s goal is to
sell and open a pre-determined amount of franchise units in
his or her specific territory. The master franchisee
benefits from populating his territory with new franchise
locations by receiving a share of the franchise fees and
royalty fees generated by each unit opening and operating in
their designated territory.
One of the
top reasons master franchising works is that it creates a
“win win” scenario for both franchiser and the master
franchisee. By allowing its concept to be sub-franchised and
developed by qualified individuals broken down by
territories, the franchiser can often grow its system much
faster and more efficiently than trying to sell single units
itself. The master franchisee in return can also benefit in
numerous and significant ways from this arrangement
including the following below.
Residual
Income:
The ability to develop a residual income stream is in my
opinion the most attractive benefit and number 1 reason to
buy a master franchise. Although all franchise agreements
are slightly different, typically the master franchisee and
franchise will split the royalty fees (typically 5 to 7%)
generated by the units opened in the master franchisees
territory. Imagine getting a nice fat royalty check every
month based on the gross sales from all the franchise units
in your territory you sold. This is a personal income stream
that can potentially last a lifetime!
Franchise
Fees:
With most
master franchising agreements when you sell a franchise unit
in your territory you typically receive a franchise fee or
commission from the franchiser for your efforts. These fees
tend to range anywhere between $15,000 to $30,000 and
generally most franchise agreements allow you to keep all or
most of it!
Low
Overhead:
Because being a master franchisee at the end of the day is a
“sales job”, there is no real need to rent or lease a retail
office space. You can in most cases easily start out in a
home based office and accrue all the benefits and
flexibility that option offers including low overhead, no
commute, generous tax deductions, more personal freedom, and
a better lifestyle.
Few
Employees:
Most master
franchisees typically start out as a 1 person owner operated
business. Once the business reaches a certain critical mass
regarding number of units sold or operating, you may in some
cases find it advantageous to hire some support staff such
as an administrative assistant or sales assistant to keep
the business growing and running smoothly. In general
however, most master franchisees don’t have a lot of
employees and all the headaches and costs associated with
having a large staff.
High
Success Rate:
As with all
franchise businesses, master franchises generally enjoy a
very high success rate. Keep in mind however that not all
master franchising opportunities are alike. It’s important
to make sure that you adequately investigate and research
any franchise opportunity before moving forward. As part of
your due diligence I would ask the franchiser if you could
speak with an existing master franchisee in their system to
get some feedback on their experiences.
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