This is the simplest platform for franchising and consists of buying an individual franchise, with the majority of Franchise Fees running from $15K to $40K plus start-up capital, which generally ranges anywhere from $40K to $300K. Food Franchises are much more expensive and total investment generally runs from $200K to well over a Million. The average ROI is 18-36 months for individual non-food units. The usual net profit for most individual units range from $40K to $150K.
This platform is when someone buys a package of generally 3-5 individual units and operates all of them, usually with a corporate support staff to assure all compliance. Although this is a multi-unit profit center, net profits are usually not a multiple of individual units as stated above due to the corporate staff needed to monitor all operations. These usually generate a net profit of 60-80% of the individual unit profits stated in #1, times the number of units owned.
Regional/Area Territory Developer (RD)
NOTE: Not all Franchisers offer the RD platform. The RD is one of the best platforms of ownership and has made many millionaires in the industry, including the father of Michael Ore (Baltimore Ravens #74) that was featured in the movie "Blind Side"." His father is a RD for Yum Foods which owns Taco Bell, KFC, A&W, Pizza Hut, & Long John Silvers. His father has about 85 units that he owns or has sold in his territory.
A RD is given a specific territory (large populated city, a large territory with several cities included, or even a state) for a larger "territory" fee verses an individual franchise. This territory will have an assigned number of minimum units in that territory (the Franchiser designates the minimum number of units) and a time schedule to place those units (Usually 5-8 years).
The main advantages of becoming a Regional Developer:
- The Regional Developer signs a separate RD contract with the Franchiser and pays a RD Fee which is calculated by a "present value" of what it would cost the Franchiser to develop the area. This fee depends on the size of your territory and the number of units projected for that area. These fees generally range from $125,000 to $550,000, depending on the Franchise, plus whatever the costs are to open your "flagship location".
- One unit is usually included with the RD Fee. Sometimes this unit can be sold and the entire FF is kept by the Regional Developer, or the unit can be opened by simply adding the start-up capital for operations.
- It is highly recommended for the RD to open at least one "flagship location" to show potential Franchisees and to use as a training center. It is also usual to have a corporate staff to monitor operations, offer support to maximize profits of each unit, & to monitor franchise compliance.
- The RD will split the Franchise Fee with the Franchiser (usually 50%/50%) on each unit sold in their territory. Sometimes the FF is split 60%/40% in favor of the Franchiser, (or... rarely.... even 70%/30% or less).
- The RD also splits the Franchise Royalties with the Franchiser, usually 50/50, or 60/40 (Franchiser/RD), for the entire term of the contract, and any extensions allowed. Most Royalties average from 5-7%. Once the territory is built out and most/all of your units have been sold, and are operating as expected, this will create a nice residual income for the RD.
Master Territory Developer (MTD)
This ownership is very much like the Regional Territory Developer in that Royalties and Franchise Fees are shared with the MTD.
The main distinguishing difference in a MTD vs. a RD is they are buying a territory that will be a country (like Brazil, Italy, Mexico, or even a vast territory to develop like South America or Europe) and most times they are given the license to sell all 3 of the previous platforms of ownership as discussed above. MTD's prices usually range in the millions of dollars, depending on the demographics.
NOTE: This should be the last ownership platform developed in a Franchise due to the complexities caused by foreign laws and the geographic distances which create a huge demand on the support teams, not to mention the additional burdens of expenses. If the Franchiser reaches out internationally before developing domestically, this should be a red flag for you to reconsider another Franchise.