Franchise fees, whether initial or recurring, are the licensing fees paid to belong to a particular franchise system. These fees are paid by the franchisee to the franchisor for the rights to use the franchise’s brand and business and operating systems in a prescribed manner and geographical location.
Here is a brief guide on what franchising fees that may be required of any franchised business opportunity you are exploring.
Initial Franchise Fees
The Initial Franchise Fee is a one-time payment paid to the franchisor at the onset of the business relationship. This fee is paid in return for the rights to receive the franchisor’s goods and services needed prior to launching the franchised business. This is typically used to cover the costs of initial training and support in the journey to become a new franchise owner.
The Initial Franchise Fee will vary from brand to brand. Some may be as low as $5000 and some as high as $75,000 or more. A well-reputed and well-established brand may have higher initial franchise fees as the franchisor will have already invested significantly in the brand and its business systems, both of which you will benefit from as a franchisee.
Considering a multi-unit investment? Some franchisors will offer a reduced initial franchise fee per location for franchisees that are willing to commit to opening multiple locations within a defined period of time.
Royalties are fees paid by the franchisee to the franchisor on a regular basis, weekly or monthly as examples. The amount or percentage of royalty fees required by the franchisor varies from business to business and primarily depends upon how much support and services the franchisor provides.
Like royalties, advertising and/or marketing fees may also be a requirement of a franchised business. This may include a one-time fee implemented at the start of a franchise agreement paid by the franchisee. It may also include ongoing fees paid by the franchisee, with the funds being used to further enhance and develop the franchise brand.
A franchise agreement will allow a franchisee to operate within the brand, using its business systems for a set period of time. Once that term is complete, and if both the franchisor and franchisee wish to renew the franchise agreement, a renewal fee is likely to be charged. This will often be a smaller investment than the Initial Franchise Fee first paid to the franchisor at the onset of the business relationship.
When an existing franchisee sells their business, and transfers their franchise rights to another party, the franchisor may charge a transfer fee. Generally speaking, it is the entering franchisee, not the exiting, that will cover the costs of the transfer fee. Much like an initial franchise fee, the costs will vary franchisor to franchisor. Much like a renewal fee, it will likely be a smaller investment than an initial franchise fee.
Do Your Due Diligence
Franchise fees should be clearly outlined in any franchise agreement you may be reviewing. They are contractual obligations, and it is important to note that non-payment of the fees can result in legal repercussions, including the loss of your location. If possible, it’s worth comparing franchise fees and requirements of competing brands in order to judge the value of what you are being asked to invest initially and ongoing. Not all franchises are the same, even within the same industry. It is crucial that you understand all the franchising costs involved clearly before proceeding with the investment.
Interested in franchising opportunities with The UPS Store Canada? The UPS Store Canada has been in the business of franchising for more than 40 years, with over 30 here in Canada. Consult our experts today to learn more. Call our toll-free number 1-800-661-6232 or email us at [email protected].