When you buy a franchise business, the first thing you write a check for is the franchise fee. But what is the franchising fee for, and why do you need to pay it?
You need to pay this one-time, initial upfront payment to the franchisor, because opens the door to the “vault.“
This vault contains everything you need to own and operate your franchise business….the secret sauce of the business you’re investing in.
With this in mind, let’s learn more about the franchise fee.
How An Attorney Describes The Franchise Fee
Here’s how Charles Internicola, a top franchise attorney (client), describes the franchising 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 that fee.
*Per the Federal Trade Commission rule, the franchise fee needs to be at least $500.
That said, in all my years in franchising, I’ve never seen a fee that low.
How Much Are Franchise Fees?
Today’s franchise fees average around $35,000. But they’re going up, and not because of inflation.
The average cost of the initial franchising fee is getting higher because more and more franchisors are hiring either outside sales organizations or franchise brokerage groups. And both entities demand big money to sell franchises (40% of the franchise fee-or more). And guess who’s paying for it?
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
- Access the franchisee network
Those are the things in the vault.
But you don’t get access to them until you pay an initial fee and sign the franchise agreement.
Don’t confuse the initial fee with the total franchise cost. Why?
In truth, because the franchise you’re interested in buying doesn’t cost $35,000.
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 initial 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:
Is The Franchise Fee Worth It? 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.
Are Franchise Fees Negotiable?
The fee is the fee. Here’s why.
What if you were somehow able to pay a $30,000 franchise fee instead of the $40,000 fee listed in the FDD, and some of the already existing franchisees found out? You think they’d be mad? I would.
That’s why they’re not negotiable.
Note: Franchise agreements do contain things that have the potential to be negotiated. See what they are here.
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 $35,000.
The franchising fee for one Subway franchise is $15,000.
Chik fil A only charges $10,000 for their franchise fee.