Franchise Fees Produce Income, but be Careful
Be Careful How You Take Franchise Fees!
Sounds like a problem you would like to have, right? Too many people trying to give you money.
Well, in franchising, it is important to be careful who you take franchise fees from. Each time someone pays you a fee, you enter into a long-term relationship in which you need to do your best to help them be successful.
Here are some questions to ask yourself before you receive a franchise fee: What is the source of their funds? Who will actually own the franchise? Can I picture myself doing business with this person for a long time? Do I like them? Is this person like others in my system who are successful? Is this person generally positive, or negative, about life? What are their true chances of success? Are they realistic about what the program can do for them?
Sometimes it is difficult not to take every fee opportunity, but if you are somewhat selective about who you accept into your franchise system you are likely to have a higher percentage of franchisees who are successful.
In fact, if you don't turn people down, who are ready to give you the franchise fee, you are probably accepting franchisees that may not be a good fit for your franchise organization.
Before taking that fee think about your obligations and the long-term relationship that you are about to experience.
But, take those initial fees, from the right candidates!
What is the purpose of the initial franchise fee, and how is the money allocated?
The initial franchise fee compensates the franchisor for the knowledge, experience, support, and brand that are provided to the franchisee. We ask clients, "If someone were to start a business like yours, how much time and money would it take for them to learn what you know?" Most roll their eyes at the thought! Franchisees are willing to pay something less than this amount for a "jump start" along with ongoing assistance.
The initial franchise fee reimburses you for the cost of developing your franchise program, pays for the cost of making the sale (advertising and commissions), reimburses you for training and start-up support, and includes some profit as well. Helping you determine the amount of your franchise fee is part of our Strategic Planning service, and we will be happy to provide franchise fee research.