After the Honeymoon: The Long-term Relationship Between Franchisee and Franchisor

During the initial start-up of a franchise, the franchisor plays a major role in helping the franchisee get the business up and running. The franchising organization assists, not just in establishing the individual business, but also in training the franchisee to run the business successfully. During this period of heavy involvement by the franchisor, the franchisee may view the ongoing fees for advertising, royalties and such, as well worth the price.

Once the business is established and the franchisor becomes less actively involved with the individual franchise, the franchisee's view of those ongoing expenses may change. He or she may no-longer feel that they are getting what is being paid for. Is this a realistic view, though, or does it stem from a misperception derived from the initial actions of the franchisor?

Royalty Fees

Almost all franchisors pay a royalty fee for use of the franchisor's brand name and products. This usually takes the form of a payment of a percentage of gross sales back to the franchising organization. Though it is true that a solid franchising organization will act to grow the brand itself, developing new products or services and promoting the brand, the royalty fee does not constitute any guarantee of anything other than use of those products, services and the brand name.

As a franchisee it may be easy to lapse into the mindset of "why am I paying them X% when I'm not getting anything back?" The truth is, the franchisee is getting exactly what they paid for, for the price that was agreed upon beforehand. As such, it is important to research a franchisor fully before committing yourself as a franchisor. Take the time to learn how the franchisor has developed in the past and what plans they may have for the immediate future, so that you can gauge the value of your ongoing investment into the company.

Advertising Fees

Ongoing advertising fees can be another source of discontent amongst franchisees. Unlike royalty fees, advertising fees are generally a set amount independent of a franchise's earnings. If a brand is doing a successful job of promoting the brand and its franchises, then there probably isn't much of a problem. It is when there is a perception of inadequate or unsuccessful advertising (or in some cases a moral dispute about advertising content), that trouble arises.

In many cases there is little that the individual franchisee can do to guide marketing by the franchisor. However, a good franchisor will have established committees for franchisees, as a group, to make concerns known, voice issues and even to suggest and influence marketing. A smart investor will evaluate a franchisor's marketing strategies and find out what inlets for franchisee influence exist within the franchise as part of their evaluation of the company prior to becoming a franchisee.

Franchising Fee

The franchising fee is the one-time payment (sometimes divided into installations) that establishes the franchise initial. It is this fee that provides the heavy degree of franchisor involvement that some misconstrue as indicative of how things will always be between franchisee and franchisor. Essentially, it is a one-time payment for a one-time service, and should be viewed as such. The worth of the ongoing fees should be evaluated independently.