What are the Costs of Owning a Franchise?

Owning a FranchiseOwning a franchise can be the fulfillment of a lifelong dream. Being in business for yourself can offer you the freedom to set your own schedule and finally earn what you are really worth. Franchising can be a confusing process, however, and it can be challenging to navigate the numerous steps to franchise ownership on your own. There are also many costs involved when you are getting started and after the business is in operation.

How does it feel to own a franchise? Well, that depends on which company you partner with and other specific factors. Owning a franchise allows you to represent an established brand, which carries with it many advantages. For one, there is a proven business model already in place that can be duplicated. In addition, you are given a detailed business plan to work from, which gives you more specific guidance on how you will reach profitability. This is especially helpful if you are an E2 visa candidate as it will help you obtain approval from the USCIS.

Franchisors also have a vested interest in your success because their reputation is on the line. For this reason, they carefully vet candidates ahead of time, and provide extensive support once you sign on and become a franchise owner. The support and other benefits come at a price, however. Here is a look at some of the costs of owning a franchise.

Franchising Start-Up Costs

The largest franchise ownership costs come in the beginning. Most franchisors require a franchise fee, which is basically a fee you pay upfront to use their name. This fee is typically in the $50,000 to $100,000 range, but there are lower cost franchises these days with fees in the $10,000 neighborhood or in some cases even lower. The fee may seem like a lot, and it is, but you are also gaining the right to use the brand name that the company has already established. This means you are benefiting from the reputation of the brand rather than having to spend months or years establishing yourself within your industry.

Along with the initial franchise fee, you are also looking at costs for commercial space, equipment, and inventory. These costs will vary widely depending on the type of business and industry you are getting into. For example, if you are looking to own a food franchise, the location, development, equipment, and inventory costs can easily run into the low to mid six figures. There are other industries, however, where you can start a franchise for little more than the cost of the franchise fee.

Some examples of profitable franchise models with low start-up costs include senior care and cleaning. With these two businesses, the services are provided at the client’s location, so there is no need for a large space. In the case of cleaning, you will need to purchase some equipment, and both businesses will require employees if you plan to expand. But still, the costs to get started can be well under $100,000.

One business that can be operated out of a home office is a sales-based franchise. With this business, all it will cost you is the franchise fee and a computer, phone, and office supplies. This franchise model is best for those who have a sales background and are comfortable selling essential services to C-level executives. For the right person, however, the cost of owning a franchise that is sales-based is surprisingly low, with no need to hire employees and a realistic six-figure annual earning potential.

Ongoing Fees for Owning a Franchise

In addition to the costs of operating your business, most (though not all) franchise brands require ongoing royalties for representing them, as well as annual renewals, or a combination of the two. Many franchisees see this as a positive because it maintains the franchisor’s interest in their success.

Look at is this way. If you paid a franchise brand a one-time fee for starting up and never had to pay them again, how long do you think they would provide ongoing support? Maybe for a year or two, but after that, if you were not profitable they would not put much more into it. By paying the franchisor a percentage of sales and/or an annual renewal fee, the company’s success is more closely tied to yours.

Other Fees for Franchise Ownership

Aside from the initial start-up capital required to use the name and the ongoing fees to keep using the name, there are a few other fees to keep in mind. Depending on the specific franchisor, you will receive ongoing services that they provide to their network of franchisees which require additional payments. The best example of this is advertising costs. Some companies require their franchisees to chip in a percentage of their sales for a coop advertising campaign. This is particularly common in the fast food industry. For instance, in most medium to large-sized metro areas, you will typically see McDonalds billboards all over town. These billboards were most likely financed by the local McDonalds franchisees.

Another common ongoing cost of owning a franchise is employee education and training. When you hire new employees, the franchisor may want them all trained the same way, so they understand what the brand is all about and what is expected of them as a brand representative. As a franchisee, you will be expected to, at a minimum, take care of the travel expenses for your employees to go to and from training sessions and other events. You may also be asked to pay something for each employee you send. As always, these fees will depend on the specific franchisor you have partnered with.

Franchising can be win-win situation for all parties involved if you do your homework and fully understand what you are getting into. Though there are costs involved with owning a franchise, you also get an established brand to represent, a business plan, extensive training, and ongoing support and marketing assistance in return.

There are many variables in deciding if franchising is right for you, and which franchise brand you should partner with. Of course, the costs of owning the franchise are among the biggest. Find out what the franchise fees are and how much you can expect to invest to get the business off the ground. Another strong consideration is your background, interests, and skillset. For example, if you can’t stand being around kids or animals, it is highly likely that a children’s or pet care franchise is not for you.

Finding a suitable franchise brand for your unique talents and passions can be one of the most challenging aspects of the process. You can speak with several individual franchisors, but this is very time-consuming, and you will not always receive the most objective information from representatives of a specific brand. A better approach may be to work with a franchise consultant who can assist you with your search.

 

National Franchise Business SolutionsAt National Franchise Business Solutions, we provide free, unlimited franchise consulting. Our approach is laid back, and we will never pressure you into a business you are not ready to get involved with. We have access to over 600 franchise brands across a wide range of industries, and through a multi-step approach, we work with you to narrow your search and match you with franchisors that would be the best fit for your passion, skills, and budget. There is never a charge for our services, and your franchise fee is the same whether you work with us or directly with the franchisor representative.

 

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