When you buy a franchise you pay a franchise fee.
In a nutshell, the franchise fee is 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.
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 initial 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.”
Lastly, as of this writing, franchise 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
- The franchisee network
Those are the things in the vault.
But you don’t get access to them until you pay the upfront fee and sign the franchise agreement.
Don’t confuse the franchise fee with the total upfront cost of the franchise business opportunity. The franchise you’re interested in possibly buying doesn’t cost $40, 000. It costs $175, 000 when you include everything you need to open for business. Always look at the total upfront investment when you’re searching for a franchise to buy.
(That tip was from an article I wrote for the U.S. Small Business Administration’s Industry Word blog.)
How To Find Out What You’re REALLY Getting For The Franchise Fee
Every franchise salesman is going to tell you why you should buy the franchise opportunity he represents. It’s part of the sales process. But you don’t have to believe him.
That’s because there’s a way for you to verify everything your franchise salesperson tells you. And it’s easier than you think.
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 franchise fee (and the ongoing costs) are worth the money.