In early retirement, I do a little bit of consulting in the franchising sector. You see, I built up a perfect business model of my small business and after a decade felt it was ready to franchise.
In doing so, I learned a lot, and I learned most of it the hard way. Suffice it to say the franchising industry is pretty difficult, over-regulated, and as a franchisor you are much more apt to go out of business than if you were to buy a franchise. Likewise, you’d be better off to buy a master franchise of a franchising system with a proven track record than to try to perfect a business model and then attempt to franchise it.
Often when master franchise buyers came to me about securing a master licensing agreement, they were particularly concerned about costs. They were also more rightfully concerned with revenue split – that is to say; how much of each franchise fee could they keep for every unit sold and how did we intend to split the royalty income stream – likewise in our case; percentage of soap sales and equipment sales (Mobile Car Wash Franchise Business).
Now then, let me tell you that as a franchisor it was hard to want to give up any of that, but alas, as my franchising company grew I realized just how hard it was to maintain a rocket ship growth and still fulfill all my duties as a franchisor.
Recently, there was an interesting piece in Global Franchise News titled; “14 Questions a Master Franchisee MUST Ask,” published in December 2016 issue.
The article stated; “Before signing that master franchise agreement, be certain that you can answer these essential questions, says Adam G. Wasch,” and the first item discussed was; How much will a master franchise agreement cost me? And the article explained: “This is the million-dollar question. The typical initial fee for a master franchise agreement will be significant, but it should also be commensurate with the brand awareness of the brand in, and the size of, the specified territory. You can expect to pay multiple six-figures for the rights to become a master franchisee.”
In our master franchise agreement we did a 1/3 – 2/3 split of the initial franchise fee for each new unit sold, we kept the 23rds portion, but also did the training. Later with larger well-financed master franchisee buyers we did a half-half split, but they had to do the training of the new franchisees themselves. On the royalty side we did the 50/50 split from the beginning.
Trust me when I tell you, I’d have rather purchased a few master franchise territories of someone else’s franchising system, than have to do the whole thing from seed to weed all over again – Just Saying.