Let’s look at some of the more common fees that you may wish to consider as you start franchising your business, from the upfront and one-off to ongoing fees.
I will also provide a general guide to how much those fees usually cost or the range they will sit in. Regardless of your industry, product, or service, franchise fees fall into quite a predictable range.
There is often uncertainty around franchise fees and how much you can charge. But let’s begin by saying that franchising is the long game, so if you're considering franchising, you should approach it as a long-term wealth strategy, not a get-rich-quick scheme. Focus on keeping the barrier to entry low and attracting the right Franchise Partners, enabling them to get into the business and realise a return quickly.
Clever new Franchisors will realise that rather than trying to make as much money as possible from the franchise fee (grant of rights), which will likely make it more difficult to attract Franchisee Partners, focus on building your royalty bank. Royalties come to you regularly for the length of the franchise agreement. But I digress.
The franchise fee is the sum paid to the Franchisor for the grant of rights to operate under the brand, using the systems and IP within a particular territory. This fee typically ranges from $20,000 to $50,000, although we do see some franchises outside of that. An example I often use which puts it into perspective is McDonald’s. Even though that's a million-dollar-plus investment to get into a restaurant, their franchise fee is around $70,000. A Subway franchise is around $35,000. So it is kept low by most Franchisors, big and small.
Training and onboarding Fees
The training fee is generally based on the actual cost of training to the Franchise Partner and doesn’t usually include a margin or very little.
Tools and equipment
In a service-based model, you might provide a start-up kit that includes tools, equipment, a marketing pack, vehicle branding, and any other items they need to get started. Depending on the type of service you provide, the Franchise Partner may already have some of their own tools, and as long as they are of equal or better quality to your requirements, you could allow them to use their tools and have their existing vehicle wrapped. Working with the Franchise Partner and taking a flexible approach to help them get into the franchise will be advantageous.
Brick-and-mortar franchises may include a project management fee for the Franchisor's assistance in the fit-out and design of the premises. The Franchise Partner will also pay for furniture, materials, signage, and merchandise. Everything required to prepare the location to start trading.
Launch marketing and marketing funds.
A successful launch will require investment in marketing and promotional activities. These will usually include a range of different media.
I’m not a huge fan of marketing funds as a percentage of gross revenue, and the reason for that is I think that they penalise bigger Franchise Partners that are performing and end up paying more towards marketing than a smaller Franchise Partner or an underperforming Franchise Partner.
In Australia, marketing funds are subject to stringent regulations for Franchisors requiring a high level of transparency, ensuring the fund is only used toward marketing costs and activity. The fund must be independently audited each year unless 70% of the Franchise Partners vote against it. The marketing fund funds the audit.
Royalty fees are usually paid on an ongoing basis (monthly is common) for using the system, brand, and IP. They recognise the Franchisor's investment in developing a robust operating model and reputation that competes effectively in the market and benefits the franchise network.
Royalty fees also sit in quite a predictable range of 5 to 15 per cent but can also fall outside this. In some franchise systems, there is a more equal split in profit between the Franchisor and Franchise Partner, or it could be a fixed amount or scaled. It will depend on your model specifically. Head office supply may also need to be factored in. We never take a cookie-cutter approach to this area.
Ultimately both parties need to make money for this to work and for you to attract Franchise Partners into your franchise network. Other fees include a support fee or an administration fee to cover the cost of head office and supporting Franchise Partners such as a call centre, centralised billing, and the technology platform etc.
Meeting funds are used to offset the cost of meetings and conferences for things such as venue fees, entertainment, food, and beverage.