Why Do You Have To Pay That Darn Franchise Fee?
When you buy a franchise you pay an initial fee. It’s called the franchise fee. And what is a franchise fee? And why do you need to pay it?
In a nutshell, it’s a one-time upfront payment to the franchisor that opens the door to the “ vault,” which contains everything you need to own and operate your franchise business.
Good News! The Franchise Fee Is Always Disclosed Up Front
Here’s how Charles Internicola, a top franchise attorney ( client), describes the initial franchise fee fee:
“ The franchise agreement will define the initial fees to be paid by the franchisee to the franchisor. The most common initial fee is the franchise fee which is the primary fee paid by the franchisee at the time of signing the franchise agreement. Other initial fees may include upfront software license fees and initial inventory requirements and purchases.”
Note: as of this writing, franchising fees hover around $35,000.
What’s In The Vault?
When you buy a franchise you get:
- The operating manual
- Access to their business systems
- Specific technology
- Marketing/advertising templates
- Formal training
- Support
- Branding
- The franchisee network
And more.
Those are the things in the vault.
But you don’t get access to them until you pay the initial franchise fee and sign the franchise agreement.
Important!
Don’t confuse the franchising fee with the total upfront cost of the franchise business opportunity. Why?
In truth, because the franchise business opportunity you’re interested in buying doesn’t cost $40,000.
The fact is, when you include everything you need to open a franchise business, your initial investment is closer $100,000 on the low end to $200,000+ or more, depending on the franchise. For example, a hotel franchise costs $10 million or more to start. My point?
You need to look at the total upfront investment when you’re searching for a franchise to buy.
On Franchise Fees
Rowley Mayo, a Mr. Appliance franchisee in Minnesota, said that “ the $27,000 franchise fee was a bargain compared with the cost of buying the sophisticated technology needed to start an appliance-repair business from scratch. It would cost you a fortune to duplicate what you get in a box from Mr. Appliance “
A gentle tip from The Franchise King®:
Do not buy a franchise until you know EXACTLY how to do thorough research.
Learn how here
Check Out This Short Video About Franchise Fees:
What Is A Franchise Fee For?
In a nutshell, you pay the initial fee to get access to the secret sauce.
Translation: to learn and use the business system ( the secret sauce), trademarks, the brand, and more. A lot more. But you need to find out if the initial investment fee is worth it. How?
Ask the Franchisees
The best way to get the truth about any franchise opportunity you’re investigating is to talk to the franchisees. After all, they’re the people who have already invested their money in the franchise, and are operating the business you may want to own, too. But here’s the catch.
You need to know what to ask them.
So make sure you have a list of questions in front of you before you talk to franchisees.
That way, you’ll be able to find out if the initial franchise fee ( and the ongoing cost s) are worth the money.
Finally, when it comes to the franchising fee, did you know that franchise brokers get paid a large portion of the fee when they successfully sell you a franchise?
Wow.
Originally published at https://www.thefranchiseking.com on November 16, 2019.
