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Initial Franchise Fee: The 4 Elements Crucial To Your Success

Guest post by: Cory Barber

Article Overview: As candidates progress through the due diligence process of evaluating a specific franchise, I am often presented with this very common question about one of the costs involved in becoming a franchisee: "what exactly does the franchise fee cover and how does it benefit me?" This is a great question that needs to be addressed.

Initial Franchise Fee: The 4 Elements Crucial To Your Success

As candidates progress through the due diligence process of evaluating a specific franchise, I am often presented with this very common question about one of the costs involved in becoming a franchisee: "what exactly does the franchise fee cover and how does it benefit me?" This is a great question that needs to be addressed. Before I answer this question, it's important to keep in mind that starting up a new "mom and pop" type business is statistically very risky. Numerous studies claim that 90-95% of new independents fail within two or three years. When it comes to franchising, however, much of the risk is reduced, or even eliminated. Although there are no guarantees, this business model is as close as you'll come to a guarantee of success. The same studies show that a new franchise business rarely fails. The reason for this is because the trial and error has already been done so many times by the franchisor that it's reached the inevitable point of trying and succeeding. Remember that the franchisor has saved you literally many years of valuable time by developing and perfecting a duplicatable system. It's not easy to put a dollar figure on that.

That being said, all franchises require an initial franchise fee. And as a potential franchisee for that business, you need to know exactly what you are receiving in exchange for this lump sum.

Here are just 4 of the key elements that you should require in exchange for the franchise fee that you're paying:

1. Brand Name. Obviously, this portion of the franchise fee can greatly vary. Are you considering a franchise that is a household name, or one that is lesser known by name? While in some cases the brand can be enormously expensive, in others it can be a terrific bargain to you. A popular burger franchise will cost you $1.5 million, while 1-800-Dry Clean, a successful pick-up and delivery franchise, can be purchased for less than $70,000. And...you have your business phone number built in to the brand! That's huge.

2. Suppliers Discounts. Your franchise fee entitles you to purchase from the franchisor's preferred suppliers which allows you to enjoy the substantial savings that bulk buying provides. As more franchise locations open, you reap the benefits by paying even less.

3. Training And Support. This can be invaluable to you, as the franchisee, particularly if you're new to business ownership. Many franchisors provide two weeks of initial training at their headquarters for you and key staff members and ongoing training in the form of workshops and conventions. You'll also have access to phone support from experienced corporate staff, so help is just a dial away, available 24/7 in some cases.

You will be provided with the franchisor's operations manual. Included in this are topics such as vendor and employee relations, accounting and billing, royalties and how their paid, scheduling, safety, and community relations. I cannot stress enough just how valuable this manual is to you, as a franchisee, and to the overall success of your business.

4. Advertising And Marketing. The franchisor conducts ongoing national marketing campaigns that you directly benefit from, such as television, radio, and targeted, high circulation print media. Perhaps your strength is not in advertising and promotions. As a franchisee, your business can still thrive as a result of strong national marketing, while you are building your own marketing skills by utilizing the franchisor's training.

These are some of the key elements that most, but not all, franchisors provide. You need to perform a self-evaluation to determine what is essential to you while conducting a search for your perfect franchise business. Although the process can be very involved and complicated, free help is always available in the form of an experienced franchise consultant.

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Article Tags: franchise business, Franchise fee, franchising, franchisor, initial franchise fee



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Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.


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