Read on to understand the ins and outs of franchise fees so you can determine if it makes the franchise opportunity.
Franchising can be a profitable business venture given the support and network that business owners gain access to through their agreement. But read the fine print first. Franchisees should account for all fees before entering into any formal arrangement.
Franchise fees are often complex and can be challenging to understand. Read on to understand the ins and outs of franchise fees so you can determine if it makes the franchise opportunity one you should go for or pass up.
This fee is the amount of money a franchisee pays a franchisor to use the company's trade name and take advantage of their marketing systems. A franchise company's size, market value, industry, startup costs for equipment and property, and the potential return on investment (ROI) all contribute to the company's franchise fee.
During the presale process, a franchisor will provide a franchise disclosure document (FDD), which outlines all details of the investment, including fees and earning potential. New franchisees should review this information thoroughly as the fee requirements are a very intricate process, and failure to adhere to these guidelines may result in the franchisee losing their license or even being sued, as established by the franchise agreement.
Franchise fees vary greatly, averaging $37,500 and ranging from nothing to above $100,000. A franchise fee payment of $0 is not an industry standard. In fact, the Federal Trade Commission (FTC) stipulates that businesses must satisfy three requirements to be considered a franchise, including making a minimum payment of at least $500 during the first six months of operations.
The initial fee is the base cost that a franchisee pays to access benefits or business systems. However, this is only the entry fee. Prospective franchisees should note that the upfront costs as well as the ongoing expenses that you will need to satisfy to maintain adherence to your franchise agreement.
Every franchise opportunity requires a franchisee to pay some amount of money before opening their business, and most require a franchise fee. In a new agreement, a franchisee can typically expect the franchise fee to cover the following:
After the initial fees, franchisees can expect to pay ongoing fees. The specific costs may vary amongst franchises, but the most common are for national advertising campaigns and royalty expenses.
Generally, franchise fees are non-negotiable, but there are some circumstances where a franchisor may adjust their cost, including:
When franchise owners open more than one location, they may become eligible for a discount on additional sites as an incentive. This a reciprocal benefit to both parties, as the franchisee receives a reduced fee, and the franchisor furthers its reach and brand.
At the end of a franchise agreement term, both parties have the option to renew the arrangement. Instead of paying another franchise fee at the full amount, franchisees are usually given a discount or only required to pay a portion of the standard franchise fee.
If a franchisee purchases a franchise business from another franchisee, they are responsible for paying a transfer fee. A transfer fee may be a fixed amount or percentage of the original franchise fee.
While franchises do provide business support for those looking to become self-employed, they can be costly in the beginning. With Hoist, entrepreneurs don’t have to pay the $30,000-plus fees of franchises.
To get started, you pay less than $10,000 — and that’s not a franchise fee. Instead, it’s an investment in your business. The best aspect of Hoist’s model is that the money you spend goes back into your company, versus paying for a brand or likeness. Instead, you'll learn how to develop the marketing narrative for your business and work one on one with our experts to build a brand identity that captures your company and attracts your customers.
In the traditional franchise system, business owners matriculate through a uniform training process. Hoist, however, provides you with guidance from day one, giving you access to training, resources, and a success toolkit. You still have room to create your own brand and put your unique spin on your company.
Business owners need to evaluate all the costs associated with business ownership to see where they’ll have the most value. That value can be in potential profits, training, resources, likelihood of success, and more. Those who want the feel of big-name appeal should further explore franchise opportunities. Entrepreneurs who want 100% of their investment to go into their own business should consider Hoist.
To learn more about the Hoist development program and how we can help you avoid a franchise fee, apply online.
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