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What Fees Can You Expect When Purchasing a Franchise?
When investing in a franchise, prospective owners will need to pay a franchise fee, ongoing royalty fees, professional fees and general startup costs.
The fees that franchisees can be expected to pay when investing in a specific franchise concept include the franchise fee, the ongoing royalty fees, overhead costs and professional fees.
A franchise fee is a certain amount of money paid to a franchisor by an incoming franchisee in exchange for the right to replicate the business model and concept. The cost of a concept’s franchise fee will be disclosed in the brand’s Franchise Disclosure Document and is often included as a supplemental fee in addition to the outlined startup costs. Franchise fees generally range between $20,000 to $50,000, depending on the brand.
When opening a franchise location, franchisees will also need to prepare to pay for startup costs, ranging from less than $10,000 to upwards of $5 million, but on average, startup costs come in at about $50,000 to $200,000. These startup costs can include furniture, fixtures, decor packages, marketing costs, POS software, construction and architectural costs, promotions and more.
Franchisees may also need to worry about professional fees, which are the costs incurred from enlisting the help of experts like an attorney to review the franchise contract or accountants to go through all the numbers.
Royalty fees will also be required when purchasing a franchise. These fees are typically paid monthly to the franchisor and are based on a percentage of a franchisee’s revenue. Depending on the franchise concept, these may be as low as 4% or as much as 12% or more. The royalty fee will be collected by the franchisor for the duration of the franchise agreement.
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