Don't Let the Franchise Fee Scare You!
Don't Let the Franchise Fee Scare You!
Not so fast. Before one can determine if the amount is right or wrong, one should have a good understanding for the reasons that the franchisor uses in setting the franchise fee.
The franchisor has a recognizable name and proven business model. The franchisor wishes to expand his empire. He likely does not have the capital or manpower to do so efficiently and profitably. So, he chooses to franchise and “lend” his name and business plan to someone else. What is the value of utilizing a recognizable brand name? What is the value of being able to utilize a proven business model?
Franchisor’s have considerable marketing costs. They probably only convert 1 out of 50, 100, or 200 interested buyers or more into a franchisee. I am sure that this ratio varies with each franchise opportunity. They have to sift through a lot of sand to find the gold.
Franchisor’s will have costs associated with bringing on a new franchisee. There will be a training session for key employees which could last for weeks. A Grand Opening, marketing materials, accounting processes, and other preopening necessities will be provided. These can be very costly.
As you can see, the costs associated with bringing on any new franchisee can add up quickly. In reality, franchisor’s rarely make a profit with the franchise fee. It merely covers costs. In fact, for many franchisors, it doesn’t even cover their costs. So if this is true, why franchise in the first place? The answer is royalty fees. Franchisors will always receive some form of royalty payment from their franchisee. These amounts will vary with each franchise opportunity, but usually they are a percentage of sales. Now that is where the franchisor profits. Granted, the franchisor will continue to provide support to the franchisee. But this level of support will not be as necessary over time as the franchisee becomes more and more knowledgeable about the business. So usually the longer the relationship with the franchisee, the more profitable the relationship becomes for the franchisor. In other words, it is in the franchisors best interest to make sure that the franchisee is successful.
If you are still on the fence as to whether or not to pursue a franchise opportunity, do not let the franchise fee scare you. In the long run the franchise fee will probably be negligible anyway. You will likely (hopefully!) pay much more money to the franchisor in royalty fees over many years than you will in an upfront franchise fee. After all, if you are paying high royalty fees to the franchisor, doesn’t that mean that sales are good?
Dont Let the Franchise Fee Scare You - To learn more about this author, visit Tom Parsley's Website.
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If you have searched for a franchise opportunity to buy, perhaps you have become frustrated at the upfront franchise fee that that franchisor is asking. $25,000.00, $35,000.000, $50,000.00 or more sounds excessive, right?
Not so fast. Before one can determine if the amount is right or wrong, one should have a good understanding for the reasons that the franchisor uses in setting the franchise fee.
The franchisor has a recognizable name and proven business model. The franchisor wishes to expand his empire. He likely does not have the capital or manpower to do so efficiently and profitably. So, he chooses to franchise and “lend” his name and business plan to someone else. What is the value of utilizing a recognizable brand name? What is the value of being able to utilize a proven business model?
Franchisor’s have considerable marketing costs. They probably only convert 1 out of 50, 100, or 200 interested buyers or more into a franchisee. I am sure that this ratio varies with each franchise opportunity. They have to sift through a lot of sand to find the gold.
Franchisor’s will have costs associated with bringing on a new franchisee. There will be a training session for key employees which could last for weeks. A Grand Opening, marketing materials, accounting processes, and other preopening necessities will be provided. These can be very costly.
As you can see, the costs associated with bringing on any new franchisee can add up quickly. In reality, franchisor’s rarely make a profit with the franchise fee. It merely covers costs. In fact, for many franchisors, it doesn’t even cover their costs. So if this is true, why franchise in the first place? The answer is royalty fees. Franchisors will always receive some form of royalty payment from their franchisee. These amounts will vary with each franchise opportunity, but usually they are a percentage of sales. Now that is where the franchisor profits. Granted, the franchisor will continue to provide support to the franchisee. But this level of support will not be as necessary over time as the franchisee becomes more and more knowledgeable about the business. So usually the longer the relationship with the franchisee, the more profitable the relationship becomes for the franchisor. In other words, it is in the franchisors best interest to make sure that the franchisee is successful.
If you are still on the fence as to whether or not to pursue a franchise opportunity, do not let the franchise fee scare you. In the long run the franchise fee will probably be negligible anyway. You will likely (hopefully!) pay much more money to the franchisor in royalty fees over many years than you will in an upfront franchise fee. After all, if you are paying high royalty fees to the franchisor, doesn’t that mean that sales are good?
Dont Let the Franchise Fee Scare You - To learn more about this author, visit Tom Parsley's Website.
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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