Buying a franchise is a great option if you want to become a business owner and are drawn to the idea of having a proven business model. Of course, there are startup costs for any business, whether it’s a franchise or starting one from scratch. However, franchise ownership also comes with various fees to consider. These fees are paid to the franchisor in exchange for rights to the brand and the ongoing support the franchise provides.
Here is an overview of different franchise fees and costs you can expect:
- Royalty fees
- Advertising and marketing fees
- Initial franchise fee
- Renewal fees
- Technology fees
- Training expenses
- Site selection and build-out costs
- And more
The initial franchise fee is typically non-negotiable as it is a flat fee that gives franchisees access to the brand and all of its proprietary elements. While it’s not common, it might be possible to negotiate other fees in particular situations.
3 Factors That Influence Negotiability
#1 – Franchisor’s Policies
Whether a fee is negotiable depends if the franchisor’s policies leave room for flexibility. Some franchisors prefer to maintain a consistent standard across the franchise network while others are more open to discussion in particular situations.
#2 – Industry Standards
In industries where standardized fee structures are more prevalent, a franchisor is less likely to be open to negotiations. For example, franchises in the fast food industry typically have non-negotiable fee structures due to their uniformity in branding and operational procedures. However, a service-based franchise such as cleaning and home improvement services might be more willing to negotiate fees based on local factors and individual circumstances.
#3 – Market Conditions
There are various market conditions that could increase the possibility of negotiations. For example, in a market where the supply of franchise opportunities is high but the demand from potential franchisees is low, franchisors might be more willing to negotiate fees to attract more franchisees. Additionally, franchisors might be more flexible during challenging economic conditions in order to secure franchisees to grow the business.
3 Possible Franchise Fee Negotiation Strategies
#1 – Research and Benchmarking
It’s essential to understand the franchisor’s business model, fee structures, and systems, as well as, the industry standards before planning a negotiation strategy. Benchmarking refers to comparing this information with competitors in the industry to gain insights on what’s normal, which can provide points of negotiation.
Another aspect to benchmark is performance-based fee structures. If you know the industry performance standards, this will help you negotiate realistic goals with the franchisor.
#2 – Highlighting Qualifications
Franchisees can highlight their experience and strengths to demonstrate the value they’ll bring to the partnership. In some cases, the franchisor might be able to justify adjusting the standard fee structure. Qualifications worth featuring include: operational expertise, business track record, financial stability, market understanding, and commitment to brand values.
#3 – Seeking Multi-Unit Discounts
People often “buy in bulk” to save money. In the same way, a franchisor might be willing to negotiate fees if a franchisee is hoping to become a multi-unit franchise owner. In this scenario, it often makes sense for a franchisor to be flexible with fees because a multi-unit owner offers the following: economies of scale, long-term partnership, system-wide growth, reduced administrative burden, financial capability, and market dominance.
Interested in Buying a Franchise?
If you’re thinking about buying a franchise, then FranNet is a great place to start. Whether or not you end up negotiating the fees with the franchisor, it’s important to be well-informed when making your decision. Our expert franchise consultants can help. They will evaluate your goals and abilities and match you with the right franchise opportunity. Our service doesn’t stop there – we will guide you through the process from start to finish at no cost to you. Schedule your free consultation today to get started on your entrepreneurial dream!