Franchise fees are perhaps one of the most misunderstood aspects of owning a franchise. Some entrepreneurs look at a franchise fee as a superfluous expense – something nobody needs during start-up when money is tight – but those within the system know better.
In today’s post, we explain the reality of franchise fees in hopes of breaking down this misunderstood “barrier to entry” for prospective business owners.
Understanding 3 Common Franchise Fees
When you buy a franchise, you are typically required to pay a franchise fee, which gives you the right to use the franchisor’s trademark and benefit from a strong brand name. The cost of training, franchisee recruiting, and territory analyses is included in this fee. Furthermore, the franchise fee gets you access to the franchisor’s operating system, which is a huge asset if you’ve chosen a successful franchise family. This fee will depend on a number of factors, and can range anywhere from $5,000 to over $80,000 depending on the brand you choose to align yourself with, and the amount of training and support that your franchisor is required to provide.
Most franchisors also charge an ongoing royalty fee. This could be a flat charge paid monthly or weekly. Some franchisors prefer to collect this fee based on a percentage of the gross sales from your business. Ongoing, percentage-based royalties will fall anywhere between 0-20% of your gross sales, and though this may seem like a lot, the percentile approach is highly conducive to long-term business planning, and because it’s based off of your sales, it ensures that you’re never gouged for more than you can afford. This royalty fee will fluctuate greatly depending on the franchisor’s infrastructure; if your franchise offers support via centralized call centers running around the clock, you can expect a bigger royalty fee.
Finally, franchisors will often charge their franchisees a fee for an advertising fund. This fund pays for national and regional advertising campaigns, and pooling it all together allows the entire franchise family to afford advertising that would otherwise be out of reach.
Why Don’t All Franchises Charge Royalty Fees? How Is This Possible?
Not all franchises will charge you a royalty fee. If that’s all that’s holding up your plans to buy a franchise, you just need to look a little harder!
But how can franchises survive without royalty fees rolling in?
When no royalties are charged, franchisees can usually find the cost made up in markups on products and services.
Are Franchises Fees Worth the “Price of Admission”?
There is no stock answer to this question. Every franchise has a different operating system, and some will be more valuable than others. Furthermore, different people require different levels of support. For some prospective business owners, their success depends on having access to reliable start-up processes, training systems, and marketing support. For other, more experienced business owners these operational systems are old hat, and may not be worth paying for. However, even experienced business owners can’t deny the value of stepping into an established brand reputation.
Ultimately, the answer to this is up to the individual, but we hope that this introduction to franchise fees informs your decision!
Please visit http://www.frannet.ca to get more insider information on the franchising world, and to find more free resources to help you buy a franchise!
About FranNet Canada
FranNet is a 29-year-old company with roots in the U.S. Its purpose being to nurture every entrepreneur’s dream of business ownership. We actively employ a specific profiling and consultation method. This method is geared to each investor with a specific business model and based on franchise trends typically found in Toronto, Ontario, Vancouver, British Columbia, or Calgary, Alberta. The most lucrative Canadian franchise opportunities are waiting for you. For more details visit – http://frannet.ca/buy-a-franchise/canada-franchise-buying-process/