What is included in a franchise fee
When working with a client, one of the top questions I get is, "what is included in a franchise fee"? Or, "what is the franchise fee and what does it cover"? Franchise fees can be broken down into two categories, the initial fee and the ongoing fees.
Initial Fee - Most initial fees or the franchise fee can range from $10,000 to $45,000. This fee will likely include:
Rights to the system
Training - Initial training and ongoing
Grand Opening assistance
Sources of furnishings, signs and products or equipment
Site selection, lease negotiation
Ongoing fees- This is often referred to as the royalties. This is the percentage paid to the franchise off of the gross revenue. It's typical to see this range from 5-6% but can be fixed and depending of the franchise can go up as high as 50%.
Advertising fees - Advertising or marketing is an expensive but necessary purchase in any business, this will also be a reoccurring expense. This can also be a fixed amount or a percentage. The average ad fee is 1-3% or a couple hundred a month.
Additional fees - This can vary from franchise to franchise.
Here are some items I have seen:
Call centers costs
Required products you are required to use (this can be a bulk buying purchase to keep margins high).
HR or payroll services
It's important to review the (FDD) Franchise Disclosure Document with a legal expert to fully understand required additional fees.