A master franchisee sits between the main franchisor atop the franchising pyramid, and sub-franchisees running businesses within specific territories below.

Responsible for recruiting, training and supporting franchisees within their assigned region, master franchisees might be more accurately described as regional or sub franchisors.

They can be more responsive to sub-franchisees’ needs than more remote franchisors, and potentially bring greater knowledge of the local sector, culture, language, laws and economic environment.

In delegating the job of recruiting and supporting franchisees, franchisors also outsource the capital risk of global expansion.

Master franchise risk-reward analysis

Master franchisees pay a fee to secure the rights to expand a brand in a specified region – which can range from a single city to an entire country – and need significant operating capital thereafter. They then make money from the fees and recurring royalties paid by their franchisees.

It’s clear, then, that the responsibilities, financial investment and potential earnings involved can all be significantly greater than for regular franchisees.

This makes it all the more important that you are thorough in your market research before signing a master franchise agreement.

You should scrutinize the franchise disclosure agreement, the franchisor’s business model and past performance, the wider industry trends and industry growth rate, and any threats to the business’ success.

To this end, a comprehensive business plan that sets out how to achieve the goals set out in the franchise agreement is invaluable.

The master franchise agreement is longer – usually lasting between 10-20 years – and more complex than the sub-franchisee equivalent. It sets out the fees and royalties paid by all parties and the number of territories master franchisees must sell during the agreement’s term.

Like sub-franchisees, master franchisees should receive the training, support and resources from the franchisor that they need to perform their role.