Determine Initial Franchise Fee

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Where do I list the franchise fee?

Determine Initial Franchise Fee

You will list the amount of the initial franchise fee payable at the time the franchisee signs the Franchise Agreement. You do not have to provide any detail for this fee.

This is an important fee and you should spend some time determining it. There are no legal guidelines or requirements for this fee. At a minimum, your fee should cover the costs of franchisee selection, training and pre-opening assistance..

Additionally, you should know the fee your competitors charge. You should set your fee in the mid-range of your competitors' fees. If you have the highest fee, your integrity is questioned. You're new to franchising – how can you possibly justify the highest industry fees? Conversely, if you have the lowest fee, your value is questioned. Do you have so little to offer in comparison? That combined with your relative newness in the market may lead your franchisee to pay a little bit more and go with someone established.

Other considerations include:

  • The nature of the services offered by the franchisor
  • The extent of these services
  • The cost of the services to the franchisor
  • The need for the franchising company to cover its overhead and possibly show a small profit
  • The ability of the franchisee to pay
  • The value of the trademark
  • The attractiveness of the franchise – is it “hot”?
  • The size of the territory being offered
  • The term of the agreement
You will want to specify when this fee is considered fully earned. You want to avoid escrow and have it be considered earned at the time the Franchise Agreement is signed and therefore not refundable under any circumstances.

Caution: do not set the initial franchise fee so high that the franchisee cannot recover from it.

   

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