I’m thinking of signing up as a franchisee, but I wanted to be sure what fees franchisees can be charged so I know I’m not paying over the odds or getting into agreements which might not be in my best interests. What should I be looking out for?
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.