What is a typical franchise fee?
This is the million dollar question… well, the $34,000 question anyway, as that’s the average franchise fee. A franchise fee can range anywhere from from $10,000 to $80,000+ and absolutely nobody enjoys paying it. The (sort of) good news is that franchise fees are typically just a one time payment.
However, if you think you may want to buy a franchise, it’s something you’ll need to get comfortable with. It’s also just one line item in your total initial investment. You’ll need additional funds available to pay for things like construction, equipment, inventory, etc.
What does a franchise fee pay for?
Different franchises have different expenses associated with onboarding you, which is why franchise fees will vary from brand to brand. In theory, the franchise fee is not supposed to be a profit center for the franchisor (the royalty is), but rather an estimate of the expenses associated with getting you up and running
For example, the support and training necessary for you to get your business up and running may be very little for something like a travel agency, whereas a trampoline park requires much more hand holding due to the scale of the business and safety precautions.
With this in mind, you’re essentially paying for the world’s best consultant for the business you’re investing in, as they know exactly how to open your new franchise efficiently to decrease your other costs and reduce your timeline to get open, which allows you to start making money sooner.
The question of what you get for your franchise fee is a legitimate one and ultimately the answer will have to be provided by each individual brand you research. But...
What should you get in return for a franchise fee?
- The rights to use the brand and trademarks.
- Training (Can be as little as a few hours online or as much as a few weeks on site)
- Opening Support
- The franchisor has opened this business a number of times already. By helping with project management, they should be able to reduce the time it takes you to get open and make sure you hit every checklist and milestone necessary to have a successful launch. They’ll help you with real estate, construction, equipment, inventory, marketing, hiring, and training during this period.
- Grand Opening Support (Many businesses launch with a Grand Opening day, weekend, or week).
- Operations Manuals
While the significant majority of franchisors do not negotiate the franchise fee, you’ll have to determine if the value of the franchise fee makes sense to you. Are you getting enough in return to make it worth it? If you had to figure everything out on your own (including branding, building a website, etc), how much do you think that would cost you? How much money would be wasted on mistakes you make along the way?
If you choose a franchise with great training and support, as well as a leadership team that you trust, that franchise fee should be well worth it. So if you’re truly interested in opening a franchise, do your due diligence to determine the value of the franchise fee, and start getting comfortable with the idea of handing over that big check.