Buying a Franchise: What does the Franchise Fee Cover?
When evaluating the purchase of a franchise, prospective franchisees, frequently, question the purpose of a franchise fee and question: "what do I get in exchange for paying the franchise fee". The following are some important factors that prospective franchisees should know about "franchise fees":
- A franchise fee is a one-time fee charged to franchisees when purchasing a franchise;
- Franchise fees are, typically, paid at the time of signing the franchise agreement;
- Franchise fees are, typically, non-refundable. So, after signing your franchise agreement and paying the franchise fee if you later change your mind, chances are, that your fee will not be refunded;
- Franchise fees, almost always, do not entitle you to assets or future services. Franchise fees serve as the "price of admission" for joining the franchise system and "obtaining the rights" to become a franchisee;
- Franchise fees are typically non-negotiable. However fee fee variations do occur when purchasing multi-unit opportunities.
- Franchise fees are legitimate fees (assuming that you have selected the right franchisor) designed to compensate the franchisor for the goodwill and systems that, presumably, the franchisor has developed and refined.
When evaluating a franchise opportunity consider that a franchise fee represents a legitimate expenditure designed to provide you with access to the franchisor's business systems, training and licensed marks. The value of a franchise investment should not be judged based on the dollar amount of the franchise fee but rather the quality of the franchise system. Factors more important than the "amount of the franchise fee" include: (a) the franchisors track record, (b) satisfaction of existing franchisees, (c) the quality of the franchisors training program, and (d) customer recognition of the franchisors goods or services.
