Area Representative and Master Franchising-The Ultimate Business Model

An Area Representative or Master Franchising is a special type of franchise agreement that gives you the exclusive right to sell or open a given number of franchises in a large geographical area. It is common for Area Representatives and Master Franchises to encompass large areas or areas containing millions of people. In these regions, you control where all franchise locations will be and how many you will build. The investment in this type of franchise may be large, but the rewards can far exceed those of any other franchise opportunity. This low overhead business, requiring few to no employees, can be built into a business worth millions of dollars. This system is one of the best kept secrets in business ownership today. It allows the business owner to develop a large business within a relatively short period.

What is an Area Representative Franchising?

The Area Representative Franchisee becomes somewhat of a sub-franchisor for that designated area, without having to experience the trial and error process that the original franchisor did. The Area Representative Franchisee generally should open and operate at least one unit for income and to use as a training center. Area Representative Franchises are rare; most franchisors do not offer them. However, when they are available, they typically sell quickly. The income available from a Area Representative Franchise is very profitable. The initial investment is low compared to the type of value you can build in the Area Representative Franchise area. Flexibility is also the greatest at this level.

Territory-Area Representative Franchises usually encompasses a large metropolitan area, an entire state or even several states. It is an exclusive area and will remain exclusive as long as the Area Representative Franchisee meets the development schedule of franchises in the territory.

Level of involvement-The Area Representative Franchisee usually sets up and operates at least one unit with a manager so they can work on selling the remaining “sub-franchises”. It is rare to find a Area Representative Franchisee who is “hands on” in a unit franchise. Most tend to spend more of their time operating like a business consultant or coach to their franchisees to help them become successful.

Liquid capital requirement-Typically $100K-$350K is needed to acquire the territory and for initial liquid capital to start the area. Additional capital will be needed to open the pilot location for which the cost is normally comparable to that of a single franchise location. However, many franchises offer discounts on the franchise fees for the pilot location.

What is Master Franchising?

Master Franchises are very similar in design to Area Representative Franchises. Master Franchising, however, is normally reserved for a very large geographic area such as an entire country. Many U.S. Franchises use Master Franchising as a means of international expansion. Otherwise, the two models look very similar.

What are the benefits of an Area Representative and Master Franchising?

As the owner of either an Area Representative or Master Franchisee, your methods of generating income are expanded over that of a normal franchise. With a normal franchise, you are generally only offering the product or service directly to the customer such as in a retail outlet. With an Area Representative or Master Franchise, you enjoy several very important advantages:

  • Receive franchise fees-When you sell a franchise to a buyer in your area, you receive a portion of that franchise fee as your royalty. You can keep up to half of the net franchisee fee!
  • Reduced franchise fee-You have the option to open up additional franchises at a significantly reduced franchise fee.
  • Royalties-You earn ongoing royalties from the services performed or products sold in your area. Once you help set up the franchisee, you receive royalty income or annuity type income for the rest of the life of that franchise. Imagine receiving 2% to 4% of your franchisee's volume every month for many years.
  • Real estate- If real estate is involved with the franchisee's location, often the Area Representative or Master Franchisee can become involved in development of sites and receive other types of real estate related income. This type of income is usually optional for the Area Representative or Master franchisee.
  • Very few customers-Your customers are your franchisees. You help support a small number of franchisees who typically own several franchise units each.
  • Very few employees-Typically, you will operate an Area Representative or Master Franchise by yourself and then expand to have an administrative assistant, a trainer or other support person, and a franchise sales person. As you grow bigger, you add more of these positions into your staff and perhaps a general manager to run the whole operation and back away almost completely, if desired. Many Master Franchisees, after having worked for several years, can retire and live off of an extremely good income and spend one or two days a month in the office.
  • Very little office space-Many Area Representatives and Master Franchisees can get started out of a home office. Once you have enough franchisees in place, then you can expand to an outside office.
  • Build equity-You can build equity in the business at a much faster rate than a normal business. Once you sell a few franchises or open your own stores, you increase the value of your business significantly. Not only do you have an existing business with cash flow, but you have additional franchise opportunities to sell, which gives the Area Representative and Master Franchise a higher value. Instead of the typical 1.8 to 2.8 times earnings of a normal business, you could average between 4 to 9 times earnings with a Master Franchise.
  • Increase value- As you open your own outlets, you create another asset of value. You now have your Area Representative or Master Franchise with a specific value and also your own franchise with its value. As the value of your franchise increases, it increases the value of your Area Representative or Master Franchise. They are separate assets that you can sell when you wish.
  • Exclusive territory-Only you and your designated franchisees will be allowed to develop franchises in your territory.
  • More freedoms-As an Area Representative or Master Franchisee, you will experience more freedoms than a normal franchise. You help set the standards of the franchise in your area.
  • Stay up-to-date on the latest technology-Being part of a larger franchise system allows the best ideas to flow into the corporate office and then into the field. You will have your own research and development department built right in.
  • Training and support-You do not need experience in the specific industry; you will receive industry specific training and support from the corporate office.
  • High success rate-Typically, franchises have a 92% success rate, according to the Sourcebook of Franchise Opportunities. Area Representatives and Master Franchises have an even higher success rate than the normal franchise.

Skills of a Successful Area Representative or Master Franchisee

  • Management or sales experience-Real life experience of running a business or managing a business for someone else is very helpful, but not essential. There are successful Area Representatives and Master Franchisees who are engineers, hair stylists, or homemakers.
  • Good people skills-You will be dealing with your franchisees and will need to treat them like customers, which they are.
  • The ability and desire to follow a proven system-The franchise system offered is a system for success when followed. Do not buy a franchise unless you believe you can follow their system. With Area Representative and Master Franchising, however, the system is a little more flexible at your level because you help set the standards for your particular area.
  • Financially qualified-Franchise fees for a Area Representative will typically range from $150K to $350K to purchase an exclusive area. While fees for a Master Franchise may run from $350K to over a $1M. In addition, you will need operating capital to support your operation until you can begin to make money. You will also need to allocate funds to advertise for franchisees. Typical operating capital will be from $25K to $200K depending on how large your set up is. Keep in mind, however, that you can begin with fairly low overhead, perhaps running the business out of your home until you are ready for larger office.

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