Everything You Need To Know About The Franchise Fee

                                        
Money plays an important role in starting and building your own business. 
 
When you invest in a franchise, the single most important aspect of your business plan is the fees you charge your franchisees. Just as you would want to know the fees, charges, and commissions on any investment you make. 
 
Each franchise is unique, there will be a unique set of franchise fees and charges. That is why understanding what a franchise fee is and how it works is important. 
 
 
What is a franchise fee?
 
A franchise fee refers to the upfront fee charged to a franchisee in order to start a franchise. The fee usually includes the privilege and use of the franchise brand’s name, products, intellectual property, and support systems. 
 
After the franchise fee has been paid, the two parties will typically enter into a legal contract or agreement, which outlines the responsibilities of each to the other. 
 
Main components of the franchise fee
 
1. Initial franchise fees
 
An initial franchise fee refers to the amount of money a franchisee pay to the franchisor when the franchisee signs the franchise agreement. It usually also includes the cost of training, location selection, initial marketing, field support, and so on. 
 
The initial franchise fee should be treated as a cost-recovery tool rather than as a profit center. Though you may receive a good fee upfront, the real return is from the ongoing relationship. 
 
 
2. Royalties
 
Royalties are the primary source of revenue in most franchise contracts and will be one of the most critical financial decisions you will ever make as a franchisor. 
 
Regardless of how they are calculated, royalties represent the primary source of profits for franchisors. They also finance the efforts of your franchisor to expand and recruit new franchisees. 
 
 
3. Operational fees
 
Some franchisees will be charged fees related to the operations of the franchise business, such as CRM support, technology fees, or support fees, and more. 
 
Some of these fees will be charged only when a franchisee goes outside of the allotted time or resources for support, for example, a franchisee has a high turnover in their management and needs the franchisor to train the new staff.  
 
 
4. Advertising fees
 
Another type of franchise fee includes advertising fees. They are paid on a regular basis and may be set as a constant amount that corresponds to your gross sales. 
 
Charging advertising fees allows the franchisors to share the costs of the campaigns. They enjoy the advantage of brand awareness and coverage, while the franchisees have the advantage of getting some of the campaign costs covered. 
 
 
5. Renewal fees
 
A franchise agreement usually covers a fixed period of time and many franchisees evaluate and decide whether to continue their relationship with their franchisor at the end of the period. 
 
If they are interested in renewing their agreement, they pay a renewal fee to renew the compensation for continued support and resources.