What is the Difference Between a Franchise Agreement and a Master Franchise?

The grand opening was going spectacularly well.  

Lined up two rows deep, waiting customers didn’t know Dale personally.  But what they did know was the familiar logo on the large sign visible from downtown.

As a franchisor, this is the picture you hope each new franchisee experiences.  

But before revenue starts flowing, it’s worth making a distinction between the two types of possible agreements.

Keep those eyes moving down the page so you can make the best decision for your business.

Defining the Terms

We want to give you the “meat” that’ll strengthen your resolve in choosing the proper alliance.  But first we need to quickly explain a couple of characteristics for each.

What is a Franchise Agreement?

This is simply an alliance between a franchisor and a franchisee

The franchisor grants the franchisee the right to use their trademark and system in order to sell or distribute goods or services. 

What is a Master Franchise Agreement?

In this case, the union is between a franchisor and a master franchisee

The master franchisee is granted the right to sub-franchise the franchisor’s trademark and system within a specified territory.

The Benefits of Each Agreement

Naturally you’re interested in rewards you can expect from partnering with other entrepreneurs.  After all, you’re taking a risk in sharing your brand with others.

A return on your investment is plausible, which should be good news for you!  Here’s where each shines.

Franchise agreement:

  1. Quality control for consistency
  2. Recognized branding and marketing
  3. Higher chance of success over a startup model

Master Franchise Agreement:

  1. Faster cash flow with established local contacts
  2. Better understanding of the community needs
  3. More direct coaching for the franchisee

With this key information, you’re ready to move forward and finalize your selection.  There’s only one final piece to the puzzle.

How to Choose the Right Agreement for Your Business

There are a few key distinctions between the two arrangements.  

Because the goals vary for each franchisor, the pros and cons will need to be weighed before time and resources are expended.  So what are the main differences between them?

Franchise Agreement:

  • Optimal for those with aspirations on a national level
  • Franchisor receives full royalty fees from the franchisee
  • Franchisee has a decreased chance of mentorship

Master Franchise Agreement:

  • Ideal for those wanting to penetrate a specific region
  • Master franchisee receives a percentage of the royalty fees
  • Franchisee has access to a local mentor

By now you should have a more clear direction on the best path to walk for your business.  However, there still may be a few lingering questions or concerns swirling around inside your head.

Let’s put those to rest.

Franchise Law Experts Reidel Law Firm

As experts in franchise law, we can help you handle the legal aspects of your business.  

In addition, our legal team can advise you on ways to shore up gaps in the following areas:

  • Franchise your business
  • Review FDD/FA
  • Review personal guaranty and real estate control docs
  • Franchisee formation, guidance, and asset protection
  • Franchise system compliance audit and training
  • Franchise planning

By effectively managing risk and maximizing opportunities for businesses we answer the needs of our clients wherever and whenever they arise.

Call Reidel Law Firm today at (832) 510-3292 or fill out our contact form to see how we can help your business franchise.