Franchise fees can vary greatly among franchisors. Learn what you need to know about these types of royalties so you can choose the best franchise opportunity for you.
What the Fees Include
You may be thinking about buying or starting a franchise and want to learn more about franchise fees. Knowing what these fees include and what purpose they serve will help you make the best decision for choosing a franchise that fits your personal and financial goals.
According to the Small Business Administration (SBA), franchise fees can be described as paying the cost of entry into the franchise system. These fees buy you the rights to own and operate a franchise business. You gain access to a franchisor’s business blueprint and are set up to run the business as part of the franchise family.
These fees cover the costs the franchisor incurs in developing business models, training programs, technology, and support systems. The fees also encourage franchisees to be invested in the success of their business which in turn benefits the entire franchise family. Since these fees are required, they also eliminate potential franchisees who are not qualified or committed.
Let’s break down the types of fees most often included in the purchase of a franchise:
- Initial franchise fee: This upfront fee gives you a license to own and operate a franchise business for a set amount of time. This fee is akin to a price of admission and should not be confused with your total initial investment. The SBA reports initial fees ranging from approximately $20,000 to $50,000.
- Royalties: An ongoing fee, usually paid monthly, royalties are calculated as a percentage of your gross income. While these fees vary between franchisors, it’s typical they run from 4% to 12%. These royalties contribute to the franchisor’s profits. They also contribute to running, developing, and maintaining the franchise business.
- Marketing and advertising fees: A key benefit of owning a franchise is the reputation and recognizability of the brand. Much of this exposure comes from marketing and advertising. Many franchisors spend significant sums of money building the status of their brand with the public. As a franchisee, you benefit from this marketing and are therefore required to pay a share of the costs of advertising. These fees are collected monthly and are often based on a percentage of your gross income, around 2% to 5%, though they vary between franchisors.
- Proprietary technology fee: Many franchisors have developed exclusive technology to aid in running the business. This tech must be updated and maintained; a franchisee’s tech fees would contribute.
How Fees Vary
Fees are common and expected in franchising but can vary from one franchisor to another. Depending on the size and history of a brand, fees can range from being accessible for business newcomers to requiring a much larger financial commitment.
The type of franchise will influence the cost of the fee as well. For example, a well-known fast food restaurant franchise can charge a much higher initial fee and ongoing fee than a mobile-based or home-based franchise which commonly offer lower barriers to entry. Different franchises also offer different degrees of training and support with variations in cost.
If a franchisor has been in business for many years, developing strong brand recognition and a positive reputation, they can charge more for those benefits. A newer brand, just gaining traction with the public, without a history of success, may charge less to entice potential franchisees to invest.
What’s Normal, and What to Look Out For
Franchise fees are not the same from brand to brand. For several reasons, the fees can differ. There is no set “normal” when it comes to franchise fee amounts. But there are certain things you can do to prepare yourself for what a particular franchisor will charge. Knowing what to expect will help you decide with whom to invest.
Do your research. Explore the franchises you’re interested in investing in. Read about them in franchise trade publications. Visit the brand’s dedicated franchising website. Go to franchise focused conventions. Reach out to current and past franchisees to learn about their experience paying initial and ongoing fees and what unexpected fees cropped up. The more research you do, the better prepared you’ll be to make the best decision for you.
How Franchise Fees Are Calculated
Typically, initial franchise fees are a one-time payment that gives franchisees access to things like the business model, training, site selection, and support. These fees generally set.
Ongoing fees like royalties and marketing fees are calculated as a percentage of your gross sales. The amount depends on the franchisor. All these fees are typically described on a franchisor’s website and in the Franchise Disclosure Document (FDD).
Franchise with Woof Gang Bakery & Grooming
Woof Gang Bakery & Grooming is the leading pet retail and grooming franchise concept in North America. Woof Gang is your opportunity to be part of the $123.6 billion pet industry and the owner of your own business.
Explore the advantages of franchising with Woof Gang Bakery & Grooming. We offer a competitive fee structure with an initial franchise fee of $49,900, a 2% marketing fee, and monthly royalties of 7%. We offer discounts and incentives for military veterans and multi-unit investors.
Other advantages include a unique concept of 63% grooming and 37% retail, giving you multiple revenue streams. We’ll provide training, business plan development, site selection, proprietary software, and national and local marketing support.
To learn more about how Woof Gang Bakery & Grooming guides you through the franchise process, request franchise information today.