Understanding franchise fees – part one
Although starting a franchise is a lot less confusing than starting your own business when it comes to the money involved, there are still the franchise fees to get your head around.
The franchise fees can be split into different categories to make them a little easier to understand.
Not all franchises charge a deposit, but if you are asked to pay one, you must check whether this deposit is partially, fully or non refundable. The deposit is usually used to research the territory or to help you find the right property.
Initial franchise fees:
When the franchise is granted, you will be asked to pay the initial fee. The amount will depend upon the company but it will cover the costs of the set up including training, recruiting, equipment and the franchise launch.
Ongoing franchise fees:
The amount that you pay as the ongoing fees is normally based on a percentage of the gross revenue. The fee will depend upon how much input the franchisor has. If they do a lot of the work, then they will have earned more fees from you. This should all be agreed before a franchise agreement is signed.