What is an Area Developer?
An area developer is a franchisee who has the right to expand a region by either appointing sub-franchisees or managed outlets.
This type of franchise development is similar to multi-unit franchising. The only difference is that this type of franchising typically involves a greater number of units encompassing a larger territorial area. Area developers have the opportunity to raise brand awareness quite rapidly in a given locale.
Experienced franchisees sign on as an area developer, agreeing to open a certain number of units by a specified date in a given geographic area, where they have been granted exclusive rights.
What are the benefits?
A couple of benefits are they have exclusivity of an area and usually receive financial incentives as they open new units. This, in essence, is like buying the units “wholesale” in exchange for building the brand in their territory.
The term “area developer” is used in different ways by franchisors. Some use it to include the additional responsibility of becoming a mini-franchisor (also known as an area representative, sub-franchisor, or master franchisor). In these instances, a developer recruits, trains, and supports other franchisees, who open and operate units in that territory. In return, this type of developer typically receives a percentage of the franchise fee for each new unit sold, as well as a percentage of the ongoing royalty stream.
What are the difference between an area developer and master franchisor?
Three major differences exist between these two types of ownership models:
- Who is involved in the agreement? If you are an area developer, the franchisor enters into the franchise agreement with the Franchisee, not the area developer. The opposite is true if you are a master franchisee; they “act” as the franchisor and grant the franchise agreements.
- Money exchanged. Since the area developer provides services and they are paid a fee by the franchisor. This fee is usually a percentage of the franchise fee and ongoing royalty fees paid by the franchisee to the franchisor. On the other hand, the master franchisee pays a franchise fee or royalty fee to the franchisor for being granted the rights to operate the system.
- Length of agreement varies. The rights to operate the franchise systems are usually shorter for the area developer; usually 5 years. Whereas master franchisors are usually granted a longer period of time, generally 20 years or more.
If you are interested in becoming an area developer or single unit franchise owner visit Franchise.com today.