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Franchisor Fees

Understanding Franchisor Fees

There are many incredible benefits to investing in a franchise business, but those benefits do not come without their costs. From up-front fees to payments that are tied to specific timetables or events, most franchisors have several different fees that they request to support the resources used by the corporate company on behalf of the franchisee.

It’s important to keep in mind that this is by no means an exhaustive list of any charges they franchisor may levy on the franchisee. Any franchise agreement must be carefully reviewed to illuminate any fees that will be charged, as well as what the franchisee will receive in accordance with said fees.

Start-up franchise fee

Most people with a passing knowledge of the franchise model are aware of the start-up franchise fee. This payment is typically made by the franchisee to the franchisor at the time that the agreement is finalized and the franchise license is granted. More often than not, this initial fee is made as a one-time, lump-sum payment, although it can sometimes take other forms.

Generally, the start-up franchise fee is made to the franchisor in return for a commitment to supplying the goods, processes, and intangibles that the franchisee will need to get the business operational. This can include things such as:

  • Branded materials
  • Proprietary equipment
  • Site identification expertise
  • Recruiting tools
  • Training manuals

Initial franchise fees vary from brand to brand, and the amount is usually determined by the extent of the capital commitment from the franchisor to the franchisee.

Brand license fees/royalties

Many, although not all franchisors, will also assess royalty fees to each of their various franchisees. These royalty fees are also known as brand license fees, and they are ongoing payments made by the franchisee on a pre-determined schedule, most likely quarterly or annually.

Royalty fees can take many different forms and be configured in multiple different ways, so it’s vital for any prospective franchisee to carefully examine the section of the agreement that outlines on-going payments and compare them with comparable franchises. They are often calculated as a percentage of gross revenue, but some companies choose to mandate an additional mark-up on each product sold that gets set aside for the franchisor. Additionally, they can be set at a fixed percentage, or the percentage may fluctuate to account for seasonal periods, market fluctuations, or other phenomena.

Advertising/marketing fees

Franchisees benefit significantly from the regional, national, or even global advertising apparatus of the parent company, so it’s not a surprise that they’re asked to offset some of the associated costs. Advertising fees are most often assessed as a percentage of sales, similar to royalty payments, but they can also be charged as a specified amount. It’s important for franchisees to remember that for most companies these fees go directly to the national or regional advertising costs, and franchisees are expected to cover any local advertising needs on their own.

Additional considerations

The fees listed so far are the most common charges a franchisee can expect to encounter, but they are not the only ones. If the franchise agreement is a contract set for a specific period of time, the franchisor may assess a renewal fee should the franchisee opt to continue. In the event that a franchisee wishes to sell their business to someone, the franchisor may choose to levy a transfer fee as a part of the agreement. Additionally, franchisors may have stipulations to assess additional fees for situations such as new technology implementation, or retraining initiatives.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.

Leading Residential Painting Franchises

Thanks to the popularity of home flipping and home décor shows on television and a resurgence in interest in décor and renovation, painting franchises are hotter than ever. Targeting the popular and growing painting and wall covering market which generates over 140 billion in revenues, a painting franchise provides paintwork services for residential customers. Since this work is performed indoors, it is equally at home in both cold and warm weather locations. You do not have to be a painter or even a home professional of any type to succeed with a painting franchise; you can hire a team to do the actual painting while you focus on running your business.

 

Five-Star-PaintingFive Star Painting

This Top 500 Franchise (as ranked by Entrepreneur) provides business owners and investors with the skills and tools they need to succeed in a growing and popular field. Five Star Painting offers a unique business model with a focus on sustainability and profit and the proprietary tools you need to get up and running fast. Unsurpassed training with the company’s unique Sure Start model allows you to get started swiftly and comprehensively covers all aspects of running your business; you’ll also have a dedicated Franchise Consultant on hand to help for your first year.

With a nationally recognized name and a protected territory, Five Star’s marketing efforts place them ahead of the pack when it comes to creating strategies and support for your business. A top web presence, national website support, and engaging social media presence ensure your location is easy to find and a comprehensive media and marketing plan keeps franchisees busy year-round.

Five Star is an established franchisor with almost a hundred units in operation. A  fully developed training program, nationwide marketing, and comprehensive training is included; this opportunity also offers financing support.

 

freshcoatFresh Coat Painters

Fresh Coat focuses on the business of painting; part of their franchise model includes full training for you and your team. You’ll learn how to find and train the best painters and how to market your business right in your hometown. A low-cost, high margin franchise opportunity, Fresh Coat aims to help customers get a look they’ll love at a price they can afford. With extensive marketing support, high-level training and a focus on the business side of things, this opportunity partners with nationally recognized brands like Sherwin-Williams and provides proprietary software and more to get you up and running quickly.

 

wowWow! 1 Day Painting

Brought to you by the same team that created the “Got Junk” business, Wow! 1 Day Painting provides complete home makeovers in a single day. Ideal for HGTV junkies and those who need a fast fix, this franchise focuses on providing instant gratification for homeowners.

With a unique sales hook, a constant flow of energy and innovative marketing campaigns, this British Columbia-based franchise aims to make a mark in North America. Wow! 1 Day Painting has a fresh and invigorating approach to marketing and the support of an experienced and successful leadership team.

 

certaproCertaPro Painters

With over 25 years of experience, this established brand has name recognition and low-risk appeal. Brought to you by the same company that also franchises California Closet and other home-related companies, this brand features opportunities in both the United States and Canada. While this is a low risk, high profit opportunity, it is more expensive to start than most other popular painting franchises. The long history of this established brand is appealing for those seeking a low-risk opportunity.

 

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.

investment

Service Franchise = Lower Investment Cost

Opening any type of franchise comes with myriad different associated costs, but the total amount you spend to open and operate the business can vary wildly depending upon the specific circumstances. One of the most important factors that will determine how much you end up investing in the franchise is whether you choose to open a brick-and-mortar (also referred to as retail) franchise or a service franchise.

Upfront franchise fees

Many times, although not in all cases, upfront and annual franchise fees will be lower for service businesses than they will be for retail franchises. To understand why that is the case, it helps to break down the concept of franchise fees by what you are actually paying for. There is, of course, relationships with global suppliers and pre-negotiated price agreements, access to patented operational processes, potential corporate legal assistance in the event of disputes, etc. But by and large, the bulk of franchise costs are determined by the power and recognition that the parent brand has with the public, and how important that brand identity is to the company’s ultimate success.

For restaurants and retail franchises, this brand recognition is usually what gets people in the door. That’s what often makes franchise costs for these businesses significantly higher when compared with the average service franchise. That’s not to say that brand identity isn’t important to service franchises, only that consumers tend to have stronger brand relationships with businesses that sell tangible goods.

Real estate concerns

The old real estate adage, “Location, location, location,” doesn’t just apply when you’re trying to buy or sell a home in a hot market; it has a major impact on costs for business as well. For many brick-and-mortar franchises, the physical location of their store is one of the most important determining factors in the amount of revenue they will earn. These types of companies often rely heavily on foot traffic, benefit from being near other commercial properties where their customers will be running errands, or receive a steady base of visitors due to being located near an important residential hub. These locations are typically very attractive in the market, and franchise businesses usually pay the price in the form of higher leases.

Service franchises, on the other hand, typically don’t suffer as much from being located in a less prime location. Many service companies operate without having any customers ever walk through the door, and therefore the location of the actual office is a low-level concern. Others get the bulk of their visitors from customers with appointments and don’t have to worry about making money off impulse visits. in any case, you can usually lease office space for your service franchise in a less expensive area and still be successful.

Operating costs and inventory

Owners love to open retail franchise businesses because the market for physical products is vast and diverse. Physical products also cost money, both to manufacture and to house. Retail franchise owners learn to deal with operating and inventory costs because they don’t have a choice, but in many cases, it has a dramatic effect on their operating margins.

Meanwhile, service businesses generally don’t have to pay for equipment that is used in manufacturing processes, the material used to produce the products or wages for the people who do the manufacturing. They have to make sure that office supplies are stocked and that any tools necessary to complete the services (both digital and analog) are in good working order, but the cost commitment is generally much lower when compared with brick-and-mortar franchises.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.