The Costs Involved

Obviously the cost of a franchise would not be the same in many respects as the cost involved when you set up your own business on your own, but still it’s important to fully realise just what could be involved in your choice should you make it.

The Right to Trade

First and foremost is the payment that allows you to trade. For many people who have just thought of the idea of buying a franchise, this will be the fee that they have considered. This initial fee covers you for the right to trade under the franchisor’s name and reputation, use their brand and sell their products. As I’ve mentioned earlier in “What Exactly is a Franchise?” the word franchise means privilege; so essentially this fee is to pay for the privilege to sell someone else’s brand and/or services.

Service fees

I’m sure you can think of a franchise that has everyone in a specific uniform and has them all trained in the same way, and also displays a clear management hierarchy. Well these kinds of things need paying for, and you cannot always depend on your franchisor to do the job for you.

There are several expenses you will have to cover here and they may not always be clear when you sign on the dotted line (another reason for me to advocate the hiring of a business professional to help you with contracts etc). Management fees are common and cover things such as staff training. This is not a negotiable thing in many cases, and many franchisors will have you over a barrel because you are selling their product or service, and they are within their rights to insist that you sell it in a particular way; and in order to do it how they want you to, you will have to pay for training.

[It can seem a little like a con when you consider these variables, but you should really know all about these before you enter into any contract anyway.]

There are other fees besides these. There are administrative fees, and perhaps things like stationary costs or other merchandising that you need to get directly from your franchisor. These are all questions that you need to ask before going in for a franchise.

You should also consider that, depending on the franchise, you may be expected to contribute to advertising costs. This may not be the case in the big companies who have huge television campaigns, but the smaller, often more regional businesses rely on a network of advertising, including all the franchises.

How are these things calculated and paid?

Mostly these fees will depend on your business earnings, and many franchisors will charge a percentage of your earnings each month to cover these expenses. When you consider it like this it makes more sense. If you sell more products then you’ve probably used more merchandise etc.

Please Note:

Although we offer well informed advice, as with all the advice offered on franchise-sales.com we always recommend that you take full advantage of the business professionals out there who can help in making your decisions.