Buying a Franchise: What You Pay, and Why you Pay It

One of the several things to consider when entering into the franchising world is the financial aspect. A potential franchisee must determine if what they are paying — and the value they will receive from that amount of money — is worth the business they will be joining. While value and cost vary significantly among each franchise, LaundroLab Co-Founder and Chief Growth Officer Dan D'Aquisto explains that a franchisee can expect to make an initial payment to the franchisor when they sign their franchise agreement, and they also are responsible for a yearly franchise fee.

The initial payment is the franchisee’s investment in the brand and typically covers what it takes to start their business location, such as furniture, fixtures, decor packages, marketing costs, POS software, construction and architectural costs, promotions and more. The franchise fee, which is any amount over $500 per the FTC Rule and is generally in the range of $20,000 to $50,000 according to the small business administration (SBA), is the fee the franchisee must make to the franchisor for the right to use the company's brand, products and intellectual property and is either paid upfront or on an ongoing basis according to the terms of the franchise agreement.

“We make sure our franchise owners are capitalized — not only for one unit but for multiple,” said D'Aquisto. “Our franchisees, aka laundropreneurs, are to be able to invest up to $350,000 of their own cash into the business to acquire an SBA loan and also meet our million-dollar-net-worth requirement.”

D'Aquisto further explains that the $350,000 a LaundroLab franchisee initially pays is a 20% investment into the equity of the total project and also includes the franchise fee. The rest of the expense for opening a location with the brand is secured through the SBA loan. He notes that this upfront franchise fee protects and blocks out a specific territory and location in whatever market the franchisee is in and is also an investment in the brand’s system and team to help them thrive within the franchise system. 

While the upfront costs associated with franchising may seem steep at first, D'Aquisto explains that the initial investment and franchise fee goes beyond just buying a location or territory and plays a crucial part in franchisees receiving top-notch support and consequently, experiencing location success. 

“The franchisee is investing very heavily into the system and its viability, and we're a full-service support model,” said D'Aquisto. “We have a team of resources that helps a franchisee each step of the way, from signing throughout the business’s lifetime. We have a real estate team, real estate attorneys, an onboarding project manager, architecture and design resources, training and operations resources, as well as marketing, human resources and technology resources. All of the money a franchisee invests upfront in the LaundroLab model goes toward the support they are getting and the continued innovation that we build on top of that. We're a system that invests our own money in ways to guarantee the success of an owner.” 

With LaundroLab’s goal of growing strategically in the coming years in its beginning phases of franchising, the brand D'Aquisto states that the brand’s transparency with the financials sets the stage to attract the best entrepreneurial-minded candidates who are okay with being new to the system and taking risks. He stresses that the initial investment and fees of joining any franchise is often a lens for an investor to realize what systems and support they will receive — and the brand’s potential for long-term success because of the systems that are (or are not) evolving and growing. 

“The biggest thing a franchisee can look for is how the company is investing in the team and the resources that will support them,” said D'Aquisto. “By understanding this component, they will ultimately feel more comfortable about the royalties they're paying if that money is going toward building out a support ecosystem to help them become more successful.”