Then, of course, there are the franchise fees — the one-time entry price to use the brand, the franchisor`s operating system and get ongoing support in the areas of management, training, marketing and more. Franchise fees typically range from $20,000 to $30,000, although they can be as high as $100,000 for more established brands. Once opened, there are current royalties to be paid, which typically range between 4 and 8 percent of gross revenue and include a current valuation for a common marketing and advertising fund (about 2 to 4 percent). This royalty structure is similar to the one mentioned above, with the exception of the franchisee`s application of a decreasing percentage of royalties, based on cumulative annual revenue and not on individual monthly sales. The licensing report reflects the cumulative amount of revenue and, as the franchisee exceeds the target, the royalty decreases for future sales until the next revenue target is met. The result are things that could have been done with advance planning and did not make an informed position and therefore time, effort and especially money is wasted in consultant fees. Pre-entry professional planning and testing may mean that a short job at a law firm, accountant or duty-free advisor is brief and in terms of expenses and benefits, so no one is disappointed. Assuming you are in a low-cost sector that is not oversaturated and assuming that you have a realistic zero-margin sales target of 5 new franchise sales (i.e. no sales to your existing organic contacts), you should consider the following total costs over the first 12 months: Often, franchisors will indicate the local marketing requirement as a series that can be adjusted over time. The reason for implementing the local marketing contribution as an assortment is to allow future changes in the franchisor`s local marketing strategy and allow for changes in market dynamics and costs. Operating manual (main office) to explain how the franchisor will manage the support office and the resources available to assist franchisees; When setting their fees, franchisors should calculate the expected financial revenues for their franchisees and ensure that the level of performance is sufficient for the franchisee and for the franchise system as a whole to achieve the desired financial results.
Therefore, when setting the starting and continuity costs – and in negotiations – it is essential that franchisors fully examine the profitability of relationships. Setting royalties based primarily on royalties collected by direct competitors is one of the most common approaches new franchisees takes and often results in excessively high or too low fees, both of which can affect the franchise system. The royalty is recovered over the life of the contract by amortization. In most cases, a seven-year period is used to recover the levy, unless the contract is less than seven years.