Re-thinking The Franchise Fee: Is It Too Expensive?

One of the most common objections to buying a franchise: “The franchise fee is too expensive.”

Is it really?

First, it’s important to define the franchise fee. That’s the amount of money the franchisor requires you to pay upfront when you’re awarded a franchise license. The fee entitles you to gain access to everything the franchisor provides to its franchisees, including training and ongoing support, brand identity, and intellectual property.

A Membership Fee

The franchise fee is sort of like a membership fee that you would pay to a country club or a gymnasium. Once you pay the fee, the franchisor welcomes you in and shows you how to set up and operate your own business.

All things considered, how much do you think a franchisor should charge for its franchise fee?

Before you answer, here’s some additional information you should know.

• The franchisor probably spent years developing and tweaking its business model for success. During that time, the franchisor may have invested millions of dollars. You gain access to that system once you become a franchisee.
• Transferring the franchisor’s knowledge to franchisees is accomplished through a comprehensive training program. Franchisors often invest tens of thousands of dollars in the initial franchisee training program.
• Supporting franchisees is expensive. Some franchisors send a team of home office staff to the new franchisee’s location for a week or more. Other franchisors assign new franchisees to a coach who is available for weekly guidance. At a minimum a franchisor must be available to answer franchisees’ questions.
• The franchisor underwrites all expenses relative to developing, filing, and maintaining the company’s brand identity – this may include legally pursuing trademark pirates!
• Selling franchises comes with a price. Franchisors pay thousands of dollars in commissions to franchise sales agents and brokers. These are the people who answer your questions and step you through the qualification process before the franchisor awards you a franchise license.
• The franchisor is responsible for staffing a home office team that includes specialists who make strategic decisions for the franchisees’ present and future operations and success.
• Membership entitles you to privileges, such as buying power. As a franchisee, you’ll pay less for products, supplies, advertising, and many services, year after year.

So what’s all that (and actually much more) worth?

Less Than A College Degree

How about $35,000? That’s a typical franchise fee amount. Some franchise companies charge less – a few as little as $5,000 – and many charge more, $50,000 plus. But even at the high end, a franchise fee is less expensive than many college degrees! Considering that a college degree doesn’t guarantee you a job, a franchise fee, which guarantees you your own business, is a pretty good deal.

If you still think the franchise fee is too expensive, figure out what it would cost you to start a similar business yourself. For example, let’s say you want to be in the pizza business. You can probably start a pizza shop for less than $20,000 today, especially if you buy used equipment. You can find a location, source out vendors for your supplies, design a logo, find a location, launch an advertising campaign, figure out the delivery routes, develop your own operational system, and voila you’re in business!

It’s Like A Lifeline

But your business won’t be a franchise. It won’t belong to a network that includes dozens, hundreds, maybe thousands of like-minded franchisees who qualify for huge price discounts (you’re going to pay full price for pepperoni, cheese, sauce, etc.). Your business won’t have instant brand identity. And God forbid you run into a problem – who you going to call for support and advice? The franchise fee may be expensive, but not as expensive as being without a lifeline.