Honest Franchises
Honest Franchises

Franchise Facts

Franchise Fees

Franchise fees will be a key factor in deciding which franchise you decided to invest in. For example; although there may be two coffee shop franchises you are interested in, one may have a fee system that is complicated and can vary greatly, while the other is straight forward and allows you to plan a more detailed budget forecast.

There are also other fees associated with franchises such as start-up expenses, licensing, insurance, inventory and marketing fees.

Initial Franchise Fee

You will be expected to pay a onetime franchise fee to have the rights to open that franchise. This one time non-refundable fee ranges depending on the franchise you are interested in.

The initial fee to open your franchise outlet can range from $0 to well over $100,000. The average franchise fee is typically around the $50,000 range. The initial franchise fee depends on the particular franchise you wish to open.

A highly successful and dominant franchise in the market can usually charge a higher franchise fee, while a new franchise with low recognition and market presence will charge a lower initial franchise fee to encourage interest from potential franchisees.

What is a Royalty Fee and Why Do I Have to Pay It?

A royalty fee is the franchisor’s share of the income derived from customers or clients as a percentage of the sales of the franchise. The royalty fee is needed to pay for the services the franchisor provides to the franchise such as the continued use of the franchise brand name and operating system. The royalty fee can range from 0% to 26% of the gross revenues of your franchise, but is typically less than 10%. It should be a reflection of the franchisor’s ability to contribute to the success of the business.

A royalty fee has several variables that are controlled by the franchisor:

  • Royalty fees can be increased or decreased at any time
  • The regularity of the royalty fee can vary greatly.
  • Royalty fees can be a fixed amount or variable percentage of the total gross sales.
  • Royalty fees can be included in the price of the franchisor’s product through mark-up.