For the last 30 years I’ve asked my audiences (mostly prospective franchisees, i.e. people who plan to buy a franchise) the same question: “What’s wrong with franchising?” And through the years thousands of people have told me that the Franchise Fee is too expensive. Today I’m starting a series of arguments about the Franchise Fee. From time to time I’ll update this topic. Look for other argument series about other topics in this blog.
Typical Franchise Fees
Franchise fees typically range from $10,000 (rarely less) to $50,000 (sometimes more) and they are paid in a lump sum to the franchisor at the time of signing the franchise agreement. Prospective franchises often complain that the fee is too expensive. From the get go I’ll agree: Some franchise companies charge inflated franchise fees and you should avoid them. But most of the franchisors I’ve assisted through the years — especially the most credible franchisors — require very reasonable franchise fees. In fact, many franchisors should increase their fees, but they’re afraid to because they would exceed the typical range.
Before you come to any conclusions about the amount of the franchise fee, I encourage you to consider several points of view, as well as the facts surrounding franchise fees. And rather than tell you everything that’s important to know about franchise fees in one article, I’m going to share my ideas one at a time. Over a period of time I’ll write a dozen, maybe more, “arguments” about the franchise fee and after you’ve read them you may see things the way I do.
No Franchises Sold Here!
By the way, it’s never my intention to get you to agree with me so that you will buy a franchise. Whether you buy a franchise or not matters not to me — at least not financially. I don’t sell franchises. That separates me from most of the people who write franchise blogs. Of course, it would matter to me if you bought a franchise and you were not a good fit for franchising, or if you passed on buying a franchise because you didn’t understand something relative to franchising. I’m an educator first and foremost, and I do not get paid for convincing people to buy franchises. I get paid for speaking, training, coaching, and writing books (sometimes articles) that provide honest, credible and objective information about franchising so that my audiences can make informed and wise decisions.
So when a prospective franchisee says the franchise fee is too much money, I want to know: Compared to what?
Sometimes the prospect will say, “Compared to what it would cost me to start the same kind of business on my own.” Fair enough. In fact, many franchisors started their original business for less than they now charge for the franchise fee. One of my books includes stories about numerous franchisors (i.e. Two Men & A Truck, Little Caesar’s Pizza, Jani King, etc.) that started their businesses for less than $10,000.
Keep Comparisons Fair
But franchisors are not selling a “similar” kind of business. Franchisors are selling a specific brand identity, with a brand promise (that may or may not be valuable), plus training and support, and an operating plan for developing a successful business. Yes, you could start a pizza or cookie or plumbing business, etc. for a small amount of money — probably less than $10,000 even today — but it won’t be part of a franchise network and it won’t come with the intellectual property already explored, tested and certified.
Don’t confuse starting a business from scratch from buying a franchise business that comes with bells and whistles. To get your own bells and whistles you’ll need to do a lot of huffing and puffing, and possibly spend several hundred thousands of dollars (or more) as you test your ideas and figure out how to make your business prosper. Maybe it makes sense to pay a fee to learn from someone else’s huffing and puffing. It’s an expensive proposition to develop your own concept. On the other hand, you might develop the next McDonald’s!