Franchise Fee - What does this pay for?

Posted by Janon Otto on Wed, Mar 9, 2016 @ 10:03 AM

franchisefee.jpg

"What is the Franchise Fee?" This is perhaps one of the most common questions asked by a potential franchise buyer. And while this is certainly one of the considerations when researching a franchise system, it's definitely not the most important figure to look at. Why is this?

As the franchise fee is the initial fee charged by the franchisor, it allows a franchisee the rights to use the logo and systems, and start a business with those items. But, what you get for that fee with each franchisor does differ. 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. For example, 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 also companies out there seeking 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, then 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 may seem 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 franchisor hundreds of thousands of dollars. This alone can make the franchise fee a real bargain!

Besides the operating history of the original concept, 0ther questions to ask about the franchise 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?
  • What kind of access will there be to other franchisees or management?
  • What kind of ongoing support is offered with the system?
  • Will the system be improved as it grows?
  • What is the vision of the Franchisor?

Investing in a small business franchise system can be a great opportunity! Are you interested in learning how YOU can join the Shear Madness Haircuts for Kids family and run your own successful small business? We are one of the fastest growing kids hair salon franchise systems in the industry today! If you would like to learn more about small business marketing, great marketing strategies, resources for small businesses, how to grow a small business, or how to become a successful owner of your own kids hair salon franchise business, please click below or call 1-888-98 GONE MAD!

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Topics: what is a franchise, Small Business Franchise Information, how to begin a business, how to franchise, what is a franchise fee

Own a Franchise - What about Royalties & Fees?

Posted by Matthew S on Mon, Nov 17, 2014 @ 09:11 AM

RoyaltiesFeesSo, 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.

Think of a franchise fee as the right to use a brand that has been built up over the years, and has many tried and true systems behind it that are designed to help a new franchisee succeed in running their business. Most new businesses go through a period of trial and error when building a following.  This period uses lots of working capital and time.  When buying a franchise you are avoiding many years of this learning curve.  Many times the Franchise Fee may seem expensive, but in the long run it may actually be a bargain for the time and money it will save you!

Royalty fees are those payments a franchisee might send each month in order to continue receiving the benefits of belonging to the franchise system.

For example, these fees not only pay for the rights to use the logos and trademarks of the franchisor's system, but also access to services that are designed to help a franchisee develop their location (demographic information, architectural assistance, site visits, fixtures, signs, and sources for equipment). Franchisees also may receive training, access to software to help run their business, access to advertising outlets (social media, publications, etc.) and access to the franchisor's marketing and graphic design department (which can help deliver customer flyers, ads, artwork and more).  The royalty also gets you the keys to contacting other business owners who are trying to do the same things that you are trying to do - which can save you time and effort.  For example: What is working, what isn't, how can we take something and make it better?  New ideas are sometimes being tried throughout the system, and you'll have access to the success and failure rate of those new ideas.

A good franchisor will also use these fees to grow the system through research and development (in order to stay competitive), monthly meetings, and the continued development of training and operational resources.  Software programs, management and cost saving systems are additional areas where the fees are used.

It's also important to remember that every franchise system is a little different. Depending on the industry, the types of services a franchisor may provide could vary. Also, size could play a factor. For example, while a smaller franchise system may not be able to offer some of the services much larger franchisors can offer - a smaller system can provide a level of personal service that the bigger systems can't.

However, if you really want to understand what you're receiving from the franchisor, be sure to read your franchise agreement. This will detail exactly what the franchisor will provide for you. And if there's something the franchisor said they would do, but it isn't a part of the franchise agreement, you may want to discuss it with them. Also be sure to refer to the Item 11, a document that outlines services the franchisor provides.

In the end, a franchise fee could be looked at as a kind of investment into the future success of a new business. By having access to years of knowledge and experience, a franchisee may take comfort in the knowledge that they won't be wasting time and money or processes that just don't work. And even more importantly, they'll have a friend in the business who is there to help them succeed! 

If you are wanting to learn more, our Franchise Buyers Toolkit in an excellent resource - and it's Shear Madness Haircuts for Kids free gift to you! Click below!

Exploring a Children's Salon Franchise

Topics: what is a franchise fee, how to buy into a franchise, franchise definition, franchise, career change, franchise buyers, buying a franchise, how to franchise, franchise opportunity, successful franchisees

Is there More to Franchising than the Franchise Fee?

Posted by Janon Otto on Tue, Dec 27, 2011 @ 14:12 PM

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.

 Click me

Topics: what is a franchise fee, how to buy into a franchise, franchise definition, what is a franchise

What is a Franchise Fee?

Posted by Janon Otto on Thu, Oct 20, 2011 @ 20:10 PM

There are many businesses out there that are franchises.  They come in all shapes and sizes!  Some are brick and mortar store fronts as in McDonalds, Muscle Max, and Shear Madness Haircuts for Kids.  Others can be consulting type operations that either have offices or are home bases businesses.  There are business coaching franchises, as well as child safety ones.  There are home construction, repair, and maintenance franchises as well.

Street View SM

Even though the types of franchises may be different what they all have in common is the Franchise Fee. 

When you decide that you want to open one a franchise business you pay the franchisor a franchise fee.  This fee gives you the rights to use the logos, systems, and name of the company as your own name.  It also entitles you to be trained in their way of doing things – the systems that will contribute to your success and shorten your learning curve!

In doing your research you will discover that this franchise fee should benefit you in many ways:

  • The franchisor has spent years perfecting the systems of the business.  If you follow them you will save years of time and boatloads of money discovering these on your own.

  • This fee gets you a built in partner as well as a business coach.  They have done everything you are doing before and can hold your hand as you walk through it.

  • The business already has a big head start on being well known.  Your advertising dollars will go further and easier than having to build this name recognition on your own.  The more franchise and corporate units there are the better for everyone in the system.

  • Having others doing the same thing that you are doing in different areas allows you to discuss new ideas and failures to aid in everyone’s business success.

  • The concept, logos, artwork, and ongoing developments are done by the franchisor; you should be able to grow along with them without doing this work yourself.

What does the franchisor do with the franchise fee?  Many have the misconception that this fee is all gravy for the franchisor.  There are many expenses a franchisor has that a normal business owner does not have.  Some of these expenses are:

  • Training Programs, operating and preopening manuals.

  • Commissions paid on franchise fees collected – if you are using a broker to find a franchise the broker can receive from 30 up to 80% of the franchise fee as commission.

  • Franchise portal and listing fees of hundreds to thousands per month.

  • Legal expenses that occur every year to update the Franchise Disclosure Document, annual registration fees, etc.

  • Accounting fees to have financial statements audited annually.

That fee goes quickly!  But in the end it benefits you the franchise buyer more that it benefits the franchisor.

Topics: what is a franchise fee, how to buy into a franchise, what is a franchise, how to begin a business