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Should You Consider Master or Area Development?

Area or Master Developer

Master and Area Development opportunities are for those with sizable net worth and assets or ability to pull together significant financing who want to either develop large territories or work as a sub-franchisor under a franchise company.

A Master Franchisor is a person or company who buys the rights to a large territory and with the franchisers help, sells franchise, provides local support of its subfranchisees, collects franchise fees and royalties and divides the money collected with or by the franchisor. Sometimes the Masters are required to: Help find locations, assist with build out and grand opening the franchisees, train and provide ongoing support to those in their territory. The percentage of the franchise fees and royalty they receive is in direct correlation to the work which is expected and provided. The split can be as much as 50% or as little as 25%.

Being a Master franchisee can be very lucrative if things go well but often the Master must be able to cover their working capital and personal living expenses as the business ramps up to where there are many subfranchisees. To receive a royalty on a franchisee’s business can really add up if the franchisees can make a good income and it gets multiplied by a large number of them. It is like receiving an annuity over 10, 20 or 30 years depending on the length of the franchise agreements.

A Master franchise can be expensive but has the most potential for making large sums of money over time. Usually the territory will allow for as little as 20 to as many as a couple hundred franchise locations, depending on the type of franchise and the amount of income each franchisee can make. A territory may range from the size of a large city, state, multi-state or can even be a foreign country. Many times the fee charged is depending on the population or the potential number of franchises the area will hold. The amount charged can be anywhere from a few hundred thousand to a few million dollars.

An Area Development franchise (AD) is one where someone acquires the rights to develop a territory over a certain period of time. The size of the AD territory could be the same as a Master franchisor; a city, state or a country. The AD agrees to develop the franchise and open a defined number of franchises. The AD usually pays a deposit on the units to be opened and then pays an additional agreed amount when they sign the unit franchise agreement prior to each unit starting under development. Sometimes because they are buying a large territory or being granted a large number of the units, they often are able to negotiate and receive a discount on the franchise fees. If the AD does not live up to the agreement, they can lose the exclusive development rights to the territory and it may even create a problem with the existing units, depending upon if there are cross default provisions in the agreements.

If you are interested in either an AD or a Master franchise, your eAdvantage4u consultant will help you find the right franchise opportunity for you. Only a small fraction of the 3500 plus franchisors will sell an AD or Master territory. Because the franchisors have to share the franchisee fees and royalties, many franchisors choose not to offer this type of franchise model. These types of investment are sizable and often terms can be negotiated for a Master and in some cases, for an AD. If you are considering purchase of a Master or AD you will want to assemble a team including a franchise attorney and CPA to assist and advise you as well as working with your eAdvantage4u consultant.