What Do Franchise Fees and Franchise Royalties Cover?

Kim Daly Coach's Corner, Vlog

“Why are there so many fees??” That’s one of the most common questions that I hear from candidates in 19 years of Franchise Consultant. Let’s take a few minutes and talk about the different fees and costs, and how they are used.

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The first and most common fee is the Franchise Fee. This is a one-time fee that you give to the franchisor on the day that you sign your franchise agreement. I call this the “cost of entry.” The franchise fee opens the gate to Disneyland and buys you access instant access to this ready made toolbox.

When you’ve completed your due diligence, you’ve been approved for the opportunity, and you’ve said “yes,” you execute your franchise agreement and you pay the franchise fee. If you are investing in more than one territory or for the right to build multiple stores over time, then you will pay for all of the franchises that you’re committed to up front. Of course, you won’t be expected to open them all at one time. You would be given a development agreement on when those additional territories or locations would have to be open.

It is also standard to pay Royalties to the franchisor, which is commonly 6-10% of your monthly gross sales. If we want our franchisors to be there to keep growing the brand, to keep looking for new opportunities, to be staying ahead of the competition, to be adapting and changing to pandemics, we have to have a profitable franchisor partner. Well, how does the franchisor make money, if not from its franchisees? The right franchisors are in it for your success. They’re making money because you’re making money.

Some franchises have a Marketing Fee. Often, candidates assume that marketing and advertising is always included in the franchise fee. Owning a business is about finding customers. So if the franchisor could find your customers for you, well, why would they need franchisees? Some franchisors will take your advertising dollars and spend them for you. Some franchisors even have national call centers, so they’ll get your phone to ring and then they’ll answer your phone, and some will even process your orders.

Ultimately, ANY fee that you are questioning in your due diligence process should be taken directly to the franchisor, or to your Franchise Consultant to really understand what that fee covers.

For more information on the fees and royalties that you pay to franchisors, or if you’re questioning any of these fees and want more clarification beyond what you can get by interviewing the franchisees in a system, please reach out to me direct directly using the form below!

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