Franchise 101: Understanding Franchise Fees

To understand how the different levels of monetary involvement work in franchising, you have to understand the groups involved in a franchise. First, there is the franchisor- and this is the company or the person who is giving over the rights to use the name and way of doing things, to the franchisee- the person who buys the franchise. The initial amount of money paid here is an up front entry fee called a franchise fee, and this money is paid once the franchisee pays the contract. That contract is called a franchise agreement and it goes into everything that the franchisee and the franchisor will need to do, for a set amount of time. When this franchise agreement expires, if it does it will need to be renewed and usually this sort of renewal is governed by state law.

That initial franchise fee may not really include anything except the right to use their reputation and the course of action, training or system that they use. Frequently, though, more and more franchisors are including various procedures and training as well as assistance in building a client base and choosing a territory in that initial franchise fee- but not all, so you will need to read through your literature to be clear on what you are going to have to take care of. More often than not you will be responsible for the real estate, furnishings, vehicles, inventory and other aspects of the business such as that. It is very normal to do business this way and usually evens things out quite alot.

Royalty fees are also a pretty regular part of life as a franchisee. Generally speaking, a franchisee pays the franchisor on going payment or a percentage of their income. Sometimes, though it is also done at a set rate or on a sliding scale, but usually the fees are outlined in that initial contract. The royalties will more often than not cover advertising, services and support, marketing, and sometimes, franchisors are the supplier of tools, inventory and other equipment that the franchisee needs. In other forms of agreements, the advertising fund is a separate fee, generally done on a quarterly basis, and go towards nation wide or regional marketing, promotion and ads for every one under the umbrella of that particular franchise.

Often, franchisors will continue to provide support and training in new innovations as they come up over time. Most franchises continually revamp their advertising campaigns, come up with new ways of doing things, and this usually gets passed down to the franchisees to train the employees or implement.

All in all, once the new franchisee has really gotten into the swing of things, it all becomes business as usual and a routine is established. At first, it can seem a little intimidating, when there is so much paperwork and information being passed around, but the process is very simple, and actually fairly straight forward. Once the business is established then the franchisee can get on to the business of profit and being able to build a more stable financial future.