What fees do you need to pay when buying a franchise?

I’m thinking of buying a franchise, but I need some advice. What fees can a franchisee be charged?

Typically, there is an initial fee payable for taking on the franchise. Make sure this fee does not contain a huge profit element for the franchisor, as the purpose of it is really to compensate the franchisor for its costs involved in recruiting and training franchisees.

There is also a continuing fee (sometimes called a management service fee) often calculated as a percentage of a franchisee’s turnover (8-9% is typical) and a marketing/advertising fee to give the franchisor funds to promote the brand nationally (2.5% would be normal).

You may also have to purchase products or services from the franchisor or preferred supplier, on which the franchisor may earn a profit or retain discounts (in which case make sure you are getting these on competitive terms).

Watch out for other unexpected costs – eg a percentage of your sale price if you sell the business.

*LawBite is headline sponsor of Workingmums.co.uk’s first Top Franchise Awards in May. The Awards are open for nominations until 4th March. For more information, click here.

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