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Sometimes, entrepreneurs shy away from franchises because they have concerns about the franchise fees they have to pay. But there is a reason franchisees are successful. Those up-front franchise fees are part of how franchisors help build their brand (and your franchise location).
Franchisors collect fees from franchisees as part of the franchise model contract. They can vary considerably by brand, and there are several kinds of fees. Normally, however, when we say “franchise fee,” we mean the initial, one-time fee that a new franchisee pays the franchisor for the right to open a franchise location. It is the ante before the entrepreneur game begins.
Franchise Fee Rules
The initial franchise fee is a payment that, in exchange, allows the franchisee access to the licenses, branding, intellectual property, trademarks and service marks of the franchisor. It will allow you to use the franchisor logo, products, training systems, software applications and other proprietary creations required to operate that franchise.
Depending on the franchisor, the franchise fee can be paid in a lump sum or spread out into monthly payments. Normally, the franchisor provides key information on the financial obligations for the franchise in a disclosure document. However, it should be noted that at present only six of 10 provinces have franchise-specific legislation. But, the Canadian Franchise Association does its best to foster transparency between franchisors and prospective franchisees by requiring its members to produce a disclosure document regardless of province.
Initial Fee Levels
The cost of the initial franchise fee can be a small investment under $10,000 or go up to about $80,000 depending on the type of business and number of locations agreed upon in the contract.
However, the franchise fee is only the start of the initial investments you will need to make. A well-known burger franchise’s initial fee might be $50,000, but it could take another $150,000 to pay to build out a location, purchase equipment, pay rent, acquire inventory, etc. There are plenty of other expenses that a franchisor will walk you through, but the initial fee to them is only that—an up-front fee that lets you operate the franchise.
In essence, the initial fee buys the license you need to operate a franchise. It gives you contractual rights to the franchisor’s organization while imposing responsibilities on you, too. For example, you must run the franchise operation in the manner dictated by the franchisor.
Is the Franchise Fee Negotiable?
Many items in a franchise contract are negotiable, but franchise fees usually are not one of them, especially for first-time franchisees. A new owner must qualify and meet all the franchisor’s requirements and has very little sway in pricing structures. The usual contract is a template that is standard and non-negotiable.
As you research franchise possibilities for your entrepreneurial adventure, there will be many levels of franchise fees within your overall budget. With federal oversight and required disclosures, your franchise fee will open the door to a recognized and proven brand with the support and expertise that you can use as a roadmap to franchise success.
Anne Daniells is a co-owner of Enterprising Solutions, a professional services firm specializing in corporate communication and financial improvement for businesses where she shares decades of corporate and entrepreneurial experience—including franchise ownership—in her writings on business culture. She has authored hundreds of articles for publications including AllBusiness.com, TweakYourBiz.com, and MSN.com. Reach out via her website for more on where corporate culture, communication, and human architecture collide.