When you buy a franchise business you pay an initial fee. It’s part of the total franchise cost, and it’s called the franchise fee. And what is a franchise fee?
In a nutshell, it’s a one-time, initial, upfront payment to the franchisor that opens the door to the “vault,” which contains everything you need to own and operate your franchise business.
The Initial Franchise Fee Is Always Disclosed Up Front
Here’s how Charles Internicola, a top franchise attorney (client), describes the franchise fee:
“The franchise agreement will define the initial fees to be paid by the franchisee to the franchisor. The most common fee is the initial 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: One of the things that makes a franchise business different than a “business opportunity,” is the franchise fee. Specifically, when you invest in, say, an Amazon business opportunity, you don’t pay a franchise fee.
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
- The franchisee network
Those are the things in the vault.
But you don’t get access to them until you pay an initial franchise fee and sign the franchise agreement.
Don’t confuse the initial franchise fee with the total franchise cost. Why?
In truth, because the franchise 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 to $100,000 on the low end, and up to $200,000+ or more on the high end-depending on the franchise. For example, a hotel franchise costs $10 million or more to start. My point?
You need to look at your total upfront investment when you’re searching for a franchise to buy.
On Initial Franchising 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“
Check Out This Short Video About Franchising Fees:
What Is The Franchise Fee For?
In a nutshell, you pay the franchise fee to get access to the secret sauce.
Translation: to get access to and learn 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. And like you, they wondered about the upfront franchise fee, 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 fee (and the ongoing costs) 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 successfly sell you a franchise?
Franchising Fee Definition And FAQ’s
The franchise fee is a one-time upfront payment paid to the franchisor when a franchisee joins the system.
The average franchise fee hovers around $30,000.
The franchising fee for one Subway franchise is $15,000.
Chik fil A only charges $10,000 for their franchise fee.
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