The Franchise Owner's most trusted news source

Log In / Register | Aug 15, 2018

Investing in an International Master Franchise - Keys to Success

A Master Franchise is a long-term investment, which merits careful consideration. If done correctly, a Master Franchise can be an excellent vehicle to build a leading concept in your marketplace on a regional or national level. In evaluating your potential for success, you should bear in mind a few factors.

IS A MASTER FRANCHISE RIGHT FOR YOU? If you are seeking a national or regional project, a Master Franchise might be right for you. Compared to a local unit franchise, a Master Franchise requires a much higher level of commitment, since you will need to develop and support multiple franchise offices across a larger territory. The capital requirements of a Master Franchise - usually several hundred thousand - are much higher than a typical unit franchise.

Which Industry? When evaluating high-potential industries, focus on market demand and competition. Ask yourself: "Is this product or service needed? Do we have a growing base of target consumers in this market?"

Also, do not make a hasty assumption that the concept would never work in your market. If a business concept is successful in other countries, the chances are good that it will work in your market as well, as long as it is properly adapted for your unique market conditions.

Which Franchisor? When evaluating different franchisors, pay close attention to corporate culture and international experience of the management team. First, you should measure your cultural fit with the franchisor by visiting their headquarters and meeting their management team. A Master Franchise is a 10 or 20 year relationship, and you must ensure that a mutual comfort level exists between you and the franchisor. Secondly, you will want to ensure that the franchisor's support team includes seasoned international managers with experience supporting Master Franchisees, not just in operations but in franchising activities.

What is the Return-on-Investment? Similar to real estate investments, with a Master Franchise you should evaluate your financial returns over a period of five years or more. You should be aware of a couple key metrics for financial success.

First, you should see a 'fee-on-fee return', meaning you should recoup the cost of your Master Franchise fee through the sale of sub-franchise territories within about 24 to 36 months. Secondly, you should be 'royalty self-sufficient' within about five years, with revenues from royalties covering your operating costs. In your early stages of growth, franchise fees are an important source of revenue, but as your franchise matures, royalties become the key to sustained profitability.

See this article in the Autumn 2005 Issue of European Franchising
Photo by David Biase via stock.xchng

No votes yet