In early retirement, I do a bit of consulting in the franchise industry. You see, I built a perfect business model for my small business and after a decade I felt like I was ready to franchise. In doing so, I learned a lot, and I learned most of it the hard way. Suffice it to say that the franchise industry is quite difficult, overly regulated, and as a franchisor, you are much more likely to go out of business than if you were to purchase a franchise. Similarly, you would be better off buying a master franchise from a franchise system with a proven track record than trying to perfect a business model and then trying to franchise it.
Often when master franchise buyers came to me to secure a master license agreement, they were particularly concerned about cost. They were also more concerned with the revenue split, ie; how much of each franchise fee they could keep for each unit sold and how we intended to split the royalty income stream, just like in our case; percentage of sales of soaps and sales of equipment (Mobile Car Wash Franchise Business).
Now let me tell you, as a franchisor, it was hard to want to give up any of that, but unfortunately, as my franchise business grew, I realized how hard it was to maintain a fast growth spurt and still deliver. all my homework. have a franchisor.
Recently, there was an interesting article in Global Franchise News titled; “14 Questions a Master Franchisee SHOULD Ask,” published in the December 2016 issue.
The article said; “Before you sign that master franchise deal, make sure you can answer these essential questions, says Adam G. Wasch,” and the first topic discussed was; How much will a master franchise agreement cost me? And the article explained, “This is the million dollar question. The typical upfront fee for a master franchise agreement will be significant, but it must also be commensurate with brand awareness and the size of the specified territory.” You can expect to pay multi-six figures for the rights to become a master franchisee.”
In our master franchise agreement we split 1/3 – 2/3 of the initial franchise fee for each new unit sold, we kept the 23rd slice, but we also did the training. Later, with the larger, well-funded master franchise buyers, we did a half-half split, but they had to train the new franchisees themselves. On the royal side we made the 50/50 split from the beginning.
Trust me when I tell you that I would rather have bought some master franchise territories from someone else’s franchise system, than have to do it all over again, from seed to weed, I’m just saying.