Why pay a franchise fee

Why pay a franchise fee

So why pay a franchise fee when I could do it myself?

When you enter a franchise agreement, on top of the purchase price, usually you’ll also be required to pay an initial franchise fee and ongoing franchise fees. Although it may seem like a double – or triple – blow, your franchise fee is most definitely your friend. It’s what sets the franchise system apart from general small business, and, in almost all cases, it’s well worth the money.

So what does your franchise fee get you?

The initial franchise fee is essentially the amount you pay to buy the brand. As part of this you’ll be able to use the franchisor’s trade name and trademarks. You’ll be able to use their business operating system and leverage the brand’s reputation and buying power for your own business. It may also include specific computer software or programs, company manuals and processes, training and support, and maybe even a marketing strategy.

This is all extremely valuable stuff for any business. It will help you to hit and ground running and support your business to thrive, all under the umbrella of a proven system that is there for you to leverage and back you up if you need it.

Ongoing franchise fees – When you’re considering buying a franchise, try not to get too caught up with how much the fees are, but rather what the fees are paying for. This is where you’ll be able to determine whether the fees represent value for money. Ongoing franchise fees can include a wide range of services and support.
These include:

  • Business services – If a franchisor performs any type of ongoing business function for its franchisees, this will be included in the fee. This could include supplier negotiations, computer systems (license and support), market research, marketing (coordinated marketing campaigns and materials), stock management, payroll and human resources.

  • Resources – It is a safe assumption to make that since the business has been franchised, the business model must work. The business model is what you’re buying and the resources are there to back it up. This could be anything from operating manuals and marketing material to software and other technology.

  • Training – Good franchisors recognise the value in training, after all a franchise system and its brand is only as good as its franchisees.  Most franchisors provide initial training, which includes learning about the brand and learning the ropes (procedures and processes), and some offer ongoing training and professional development opportunities for their franchisees. This may also extend to your staff.

  • Support – Your franchisor wants (and needs) you and your business to succeed as much as you do. Therefore, almost all franchisors offer some kind of ongoing dedicated support. It could be as simple as someone at the other end of the phone to talk to or it could be an extensive development and wellness program.

It’s important to note that every franchise system is different. Some franchises don’t charge an initial fee and some don’t have ongoing fees. Some also separate out their fees. What we’ve described here is some of the most common arrangements. If you are unsure about anything to do with franchise agreement and fees, seek legal advice before signing a contract.

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