Tutorial 2: Intro to Franchise Fee Fundamentals

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 Have you ever wondered why franchisors charge franchise fees? Simply put, these fees ensure the franchisor has a vested interest in your future. But let’s back up a little bit. You’re probably asking yourself, what exactly are franchise fees and why are they important?

Typically, franchise fees are paid by the franchisee for use of the franchisor’s trademark, brand and operating system. There is usually a one-time initial fee, plus an ongoing fee called a royalty.

Depending on the franchise you invest in, the initial franchise fee will range anywhere from $5,000 to $75,000. Higher franchise fees are usually reserved for – you guessed it – more established and recognized brand names. The initial fee has you in mind and covers the cost of the training and support needed to get your new location up and running, including territory analysis, site identification, recruiting, grand opening launch, franchise development, and more!

While the initial fee is designed to help you start your business, the royalty is set up to ensure you sustain success. Royalty fees cover the cost of ongoing support and services provided to franchisees. The more involved the franchisor is with business operations, the higher the royalty fee. When no royalty is charged, you can expect these costs to be built into product sales or sale of services in the form of mark-up or rebates on products.

Most franchise companies also charge franchisees a fee for an advertising fund where the advertising dollars of all franchisees are pooled together to share the cost of national and regional advertising conducted by head office. By pooling advertising dollars together, you and your fellow franchise partners benefit from extensive and wide-reaching marketing you wouldn’t be able to afford on your own.

So, whether the franchisor is collecting the initial franchise fee, ongoing royalty, or additional advertising costs, it’s all for a good cause – to support you. Your success is their success!

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Disclaimer
The opinions or viewpoints expressed herein do not necessarily reflect those of the Canadian Franchise Association (CFA). Where materials and content were prepared by persons and/or entities other than the CFA, the said other persons and/or entities are solely responsible for their content. The information provided herein is intended only as general information that may or may not reflect the most current developments. The mention of particular companies or individuals does not represent an endorsement by the CFA. Information on legal matters should not be construed as legal advice. Although professionals may prepare these materials or be quoted in them, this information should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.