When you sign an agreement with open a franchise, you’re probably going to be expected to pay a franchise fee. As you begin your search, learn the basics of franchise fees and prepare yourself for this necessary expenditure.
The nature of the franchise fee
The main thing that distinguishes the franchise fee from other payments you will make to the franchisor is that it is a one-time fixed fee. This is in contrast to other fees levied by the franchisor, such as royalty payments or advertising fees, which are generally recurring in nature and often calculated as a percentage.
Essentially, the franchise fee is like a membership fee for joining a club. It’s made when you first buy into a particular franchise system as a way to denote that you are now an authorized franchisee of this company. It gets you in the door, so to speak.
Also, while franchise fees are generally the same amount for all franchisees buying into the company, they vary drastically across industries and brands. For some simple service franchises, the franchise fee may only amount to a few thousand dollars. However, for more famous brands they can reach upwards of $100,000.
What you can expect to get in return for the franchise fee
The detailed explanation of what is covered by the franchise should be included somewhere in the franchise agreement, and actual specifics may differ depending upon the company. However, there are some standard elements of the franchise fee that you can expect any time you purchase a franchise.
Typically, paying the franchise fee allows you to use the franchisor’s brand and trademarks for the duration of the franchise agreement. Also, you will be allowed to use any proprietary processes and systems that make the company unique. These processes are often one of the most valuable parts of a franchise business.
Although it doesn’t apply in every case, many times the franchise fee will also give you access to special, pre-negotiated vendor pricing agreements, software platforms that are vital to running the business, equipment, and operational manuals. Sometimes, the franchise fee also helps to cover costs for your location’s grand opening event.
How is the amount of the franchise fee determined?
There is no set formula for determining the amount of a franchise fee, but in general, the more value the brand holds the higher the cost will be. Value, of course, is a qualitative attribute, but it often combines name recognition, built-in customer bases, the complexity of proprietary business systems, intellectual property, and more. The more of these qualities that the franchisor brings to the table, the more likely it is that they’ll be able to command a higher franchise fee.
Fitting the franchise fee into your budget
The franchise fee is only a small part of the total amount you are going to invest in a franchise business, but it can still have a significant impact in your choice of which company to partner with. Make sure that you research your options thoroughly so that you know what to expect, and assess how much you think you can afford to spend on a franchise fee as a part of your overall budget range.
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 1-850-366-2394.