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