As you venture into the world of franchising, like any business investment, the more knowledge you have the better. If you are thinking about becoming a franchisee, the most important part of the equation is your money. If you were to start a business from scratch, you would need to finance the start up costs. There are some typical franchise fees that should be considered in the same way: they are your investment into your new business. But unlike going it alone, with a franchise, your fees are paying for a proven business model, training and support, and the use of the brand’s name recognition. Franchise fees are a necessary part of franchising.
Most franchises are very transparent about the typical initial and on-going franchise fees needed to begin your business ownership. Let’s break down the fees you can expect to pay, not only to avoid getting taken advantage of but to begin your ownership journey with the most realistic expectations possible.
The Franchise Fee
You work hard for your money and before you lay down a large sum of money, know what you’re getting into. The Small Business Administration puts it best when they describe what a franchise fee is. It is the cost of entry. The franchise fee is something you pay up front to get started. It gives you permission to use the franchisor’s name and proprietary business systems. You get the complete setup. Franchise fees allow you to own and operate the business. It is a one-time fee.
There is no wiggle room regarding price nor option to pay. The actual price tag for a franchise fee often ranges from $10,000- $50,000 but varies from brand to brand.
The franchise fee is your entry to the opportunity, but there are more expenses to be aware of.
First, consider costs such as advertising or marketing fees. The franchisor wants to do everything possible to make sure customers are familiar with their brand name, and that brand awareness helps everyone involved. As a franchisee, the more your local customers know your brand, the better for you. It means a larger customer base and higher retention. Plus, patrons trust brands because of the standards set, which customers come to rely on. As a franchisee, you benefit from positive brand reputation.
Franchisors spend thousands of dollars to get their messaging in front of the right audiences. That means you, as a franchisee, will have to pay your part. That will come in the form of a monthly marketing fee; usually determined by your monthly gross revenue.
The price tag? Expect anywhere from a one percent to five percent marketing fee. Your job is to determine if the marketing fees are working. You will have to crunch the numbers with your particular brand to see if there is a solid return on your investment. Ask current franchisees if they feel the marketing fee is fair and that they are getting out as much as they are putting in.
Royalty fees are somewhat similar. A royalty is paid to the franchisor, monthly. Much like your marketing fees, these fees are based on a percentage of your gross revenue. You will find these fees to be higher. Franchise royalties run the gamut from four percent to upwards of 12 percent, depending on the business.
Monthly royalties are how the franchisor makes a profit. It’s a recurring revenue they use to remain in business. Franchisees pay these fees for ongoing rights to participate in the franchise.
Don’t be surprised to see something called a technology fee. It’s not as common as the other typical franchise fees, but it’s worth mentioning because about 60 percent of franchises charge this.
The technology fee contributes to the purchase or use of the brand’s hardware, and networking equipment, necessary for store operations. This is usually a flat rate. Keep in mind that even if you were not part of a franchise system, you would still have to pay a third-party provider for these types of technology fees. Doing your research on these costs should be an additional part of your decision making process as you determine if franchising is the right option for you.
It’s standard practice for the franchisor to want to know if you are financially capable to be in business. While this is not a specific “fee” it is still a financial touchpoint that you should be aware of when starting your research into a brand. Most franchisors will want proof of your liquidity- or how much cash you have available. Plus, they will set a minimum level of net worth to be considered a franchisee candidate. They will name a figure which is the minimum amount of liquidity needed by their standards, so that you will remain operational until you begin turning a profit.
Wild Birds Unlimited
At Wild Birds Unlimited, we are looking for nature enthusiasts with business know-how, excited to bring people and nature together through the hobby of backyard bird feeding, nature products and local expert advice.
We are very transparent about all our typical franchise fees because we want your franchise ownership to be a good fit for you and us. We ask our franchise candidates to have a $300,000 minimum net worth and $40,000-$50,000 of liquid capital.
We have a $40,000 franchise fee which gets you started. Our royalties are four percent of gross sales and the advertising fund is one percent of your gross sales. Your start-up costs will run $185,179- $311,043. Your actual start-up costs will vary from store to store depending on location, size of store, local retail rental rates, time of year and available capital.
We provide our franchisees a highly effective business system to follow with the potential for solid growth and good profits. These fees are beneficial to both parties in a complimentary business partnership.
If you want to learn more about joining our flock, fill out this form and come fly with us.