So, just what exactly is a Franchise fee? How about Royalty fees? What does a franchisee get by paying a franchise fee or royalty fees? For those who are investigating a potential investment into a franchise system, these are important questions.

What is a Franchise Fee?

When investing in a franchise a buyer will most likely pay a franchise fee there is a LOT more to franchise ownership than this fee.

Our franchise development director says that "What is the Franchise Fee?" is the most common question asked by a potential investor.  While this is one of the considerations it is definitely one of the least important items to look at.

The franchise fee is the initial fee charged by the franchisor to give a franchisee the rights to use the logo, systems, and start a business with those items.  But, what you get for that fee with each franchisor does differ.  Things to compare for that fee are:

• How much training is included with this fee?  Every system has different training, some may be at the franchisor's office, some may be online, and some may be at your place.  A detailed outline of the training you should receive is included in the Franchise Disclosure Document in Item 11. 

• What items are provided?  Do you get manuals?  Most often you should get a Pre-Opening Manual and then also an Operations Manual.  There may be other items that are neccesary to your business - which of those are provided and what must you pay for going forward?

• Access to other franchisees or management?

• What kind of ongoing support is offered with the system?

The Real Value in a Franchise Fee

While these are the items to check the value of the franchise fee probably the most important thing that you are paying for is the learning curve that the franchisor paid for with years of previous experience.  This is what you need to find out about.  There are franchised companies out there with huge differences in the amount of experience they have in operating the concept that you are buying.

There are actually companies out there seek out new businesses to franchise. These are usually companies that market franchises. They charge the franchisor the fees to do the legal and set up work to make them franchisable and then also charge them to do the marketing.  If the franchisor does not have many years of operating history they will still be learning as they are also franchising - this is can be a dangerous combination!

The learning curve is the MOST valuable asset that you aquire when investing in a small business franchise!  At Shear Madness Haircuts for Kids the operating history was 13 years before franchising.  Most successful "new" franchises have suprisingly long operating histories.  Five Guys Burgers and Fries seems newer, however they have been in business since 1986, and began franchising in 2001!  Starbucks began opening coffee shops in 1985, and Papa Murphy's Pizza opened in 1981 and started franchising in 1995!

As companies grow they have successes and failures this is normal.  When you invest in a franchise most of the franchise fee is for the avoidance of those failures!  Those failures may have cost the franchisore hundreds of thousands of dollars. This alone can make the franchise fee a real bargain!

Investing in a small business franchise system can be a great opportunity. If you would like to receive a FREE whitepaper designed to help when evaluating ANY franchise click on the link below.

You are doing what!?  That is the question we heard most when we told our friends and family that we were franchising Shear Madness Haircuts for Kids.  What is franchising?  Are you MAD?  It was obvious that though there are franchises every where we do business, that most people have no idea what a franchise is.

A franchise is a business model.  When a business owner decides to expand his business he has options.  One of those options is to franchise.  Franchising allows others to own their own company yet use the name, logo, and systems of the franchise business owner (the franchisor).

A franchisee uses his own funds, has the full responsibility of the success or failure of his own company yet has the following advantages:

1. He doesn't not have to come up with his own YOU-nique business idea.

2. He can use the systems that have already been developed and used successfully by another shortening the learning curve.

3. He gets "Super Natural Support" & training with a business partner who knows and cares about the success of his new business.

4. If the franchise system is progressive, he does not have to worry about "the Ongoing Labwork" needed to develop the concept further and keeping up with trends as the franchisor will worry about that for him.

5. National advertising is done for him.

6. As the system grows the name brand recognition grows without the franchisee having to open more locations himself.

7. When a franchisee is ready to sell his business he has a partner in this process and a recognizable asset to sell.

What does the franchisor get?

1. The franchisee pays the franchisor an initial franchise fee for the training, systems, logos, etc. of the franchised business.

2. The franchisee pays an ongoing royalty - which is usually a percentage of sales for the continuing developments of the franchise and ongoing support of the franchisor.

3. Many times the franchisee contributes to a National Advertising Fund a percentage of sales for advertising that benefits all businesses within the franchise system, saving

Why would a Business choose franchising as a way to grow?

1. Many times a business can grow faster using the franchise method instead of the company owned store model.

2. The franchisor does not have the added responsibility of additional payroll as they do not pay the franchisee as they would an employee.

3. Training may be the forte of the franchisor and they enjoy watching others succeed using their concept.

4. A franchisor does not use his own capital to grow the brand.