There can be lots of conflicting information regarding franchise fees.
So we explore ‘how much does a franchise cost’ here. When researching franchise opportunities you can be bombarded with financial terms that are confusing and unclear. We want to help you understand the different fees. As well as the meanings of each, and our own franchise costs. So you can see how they compare to the rest of the marketplace.
What is a ‘franchise fee’ and what are other franchise costs?
The term ‘franchise fee’ can be a little ambiguous. Usually there will be two sets of overall fees you need to be aware of and in some franchises three. These are; 1) an ‘initial franchise fee’ paid on signing a franchise agreement and 2) a ‘management fee’ (also known as a ‘royalty’ or ‘service’ fee), an ongoing fee that will be payable routinely on an ongoing basis, and 3) some franchisors ask for an ‘advertising fee’. This is an ongoing cost paid on top of your management fee. A marketing pot to pool with the rest of the franchise network for group marketing and advertising. We explore these and other terms you may be unfamiliar with below.
How much does a franchise cost? – The initial franchise fee
The initial fee you pay a franchisor is often what people are referring to when they ask ‘How much does a franchise cost?’, however it will differ franchise to franchise. These costs can range form under £10,000 to the astounding £11.3million paid for a Choices Hotels International start up in 2015! According to recent statistics however, the average initial franchise fee in the UK is £40,000. To compare, we at Just Shutters start our franchise fee at £25,000+ VAT and average £27,000+VAT; our range reflects the territories we have available, their demographic profile and therefore our projections for the region.
Across the board, an initial fee will depend on many things. Mostly it will reflect the level of involvement the franchisor will have in your start up and the expense this will incur, many will also take a large sum for the prestige and reputation of the brand. Just Shutters keeps these costs to a minimum to spend as much as possible on your ‘package’. Giving you everything you need to successfully launch your franchise. To compare the spectrum however, you should consider the following; starting a £2.1 million KFC franchise in London for example will involve property deposits, shop fitting and the marketing of a world esteemed brand. In contrast a franchise for less than £10,000 will likely be little known, have very small start up costs and little to no advertising budgets.
What is included in the initial franchise fee?
Each franchise will have its carefully considered package. You should go through exactly what you will be receiving with the franchisor before contracts are signed. Also remember; if it is not in the contract you should questions why. A franchisor is only obliged to honour the contract, therefore if something is promised but not contracted, seek advice and don’t be afraid to ask the ‘awkward’ questions. After all, it is your money and your right to know where it goes.
As a rule of thumb you would expect the following to be covered in full or in part (if relevant) by the initial franchise fee;
A location or territory (usually exclusive), that you can trade in without threat of the company setting up in competition. This could be a physical shopfront or a mapped our territory of service. With a Just Shutters franchise we work with our franchisees to map the best possible territory. This will be within a radius of where they live and want to work. Furthermore it will incorporate the best local areas with our target demographics.
Access to tried and tested systems, management systems, operations, and the confidential ‘manual of operation’ that has created successful businesses already.
The right to use the franchisor’s overall brand in name, reputation and trademarks.
Access to the company suppliers; usually at good discount prices over that you would achieve as a single start up company.
Training. This can be in many forms; on the job, sales, management, business, and depending on the franchise, specific product and service training. This can be for one or more of your team. Just Shutters offer the franchisee and their staff full product, systems, business, design and fitting, and sales training both at startup and at regular ongoing events.
Companies will differ in their offering of the following items as part of their franchise fee. Some will charge additional fees for these services.
Marketing and advertising; usually a great initial expense of any business! Buying into a franchise can be very cost effective. A franchisor will know what works, where their best and best value leads are generated, they will have bigger buying power and access to experts either in house or for better fees than most start up companies. We have an in-house expert in marketing, branding and digital development, who has been with the company since day one.
Website; usually a franchise will have their own website that is optimised for marketing purposes. This can be a vast expense when starting a business so being added to or having part of a thriving, lead generating website can be a huge bonus of buying into a franchise. As explained above, with a Just Shutters franchise you will have your own part of our highly successful website, written by an SEO expert, this will then be marketed to generate leads for your business.
Computer software, bespoke computer systems.
Access to appropriate vehicles! With a Just Shutters franchise part of your initial fee goes towards a beautifully branded Just Shutters van.
Staffing; a franchise fee will usually cover a certain level of staffing needs. At Just Shutters we have a fully staffed head office that will take calls, send brochures, chase leads, book appointments, keep diaries and look after a great deal of your day to day business running. In addition, we offer as a very experienced business manager who is here to support you.
Sales kit, literature and other equipment; depending upon the franchise you will receive all you need to start making sales from day one.
The franchise management fee – and advertising fee
Published figures usually do not include VAT or working capital.
Usually franchisees will be charged an ongoing fee. This can be referred to as a ‘continuation fee’, a ‘service or royalty fee’, or simply a ‘management fee’. Many companies keep quite secret the ins and outs of what a franchisee actually gets for their money. Mainly because it can be hard to quantify. we at Just Shutters are very transparent with our franchisees and keep record of everything we take in fees and exactly what they get in return.
A usual management fee is between 5% and 10% depending on initial franchise fee and level of ongoing service. On top of this as mentioned earlier, there is usually an advertising or marketing fee of 1 – 5%. This is usually for national or group advertising campaigns that may or may not directly benefit your business.
With a Just Shutters franchise you pay a 10% flat fee. This INCLUDES a 3% marketing fee which is spent on marketing and advertising that DIRECTLY benefits your business. You will be expected to market and advertise your business locally on top of this. However, the 3% fee is spent in the most cost effective areas to generate the very most sales possible for YOU, guaranteeing a much better return for your money that you would get outside of the group.
Also for this fee, you will receive (from Just Shutters); staffing – as outlined above a fully staffed head office taking calls, booking appointments and following your leads, a business manager to help guide you and help you achieve success, ongoing training and support. Use of all our systems, our discounts, our lifetime guarantee on products and much more.
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How much does a franchise cost? – A summary
Franchising can be a fantastic way of running a cost effective business, by working with experienced people who have big budgets, buying power and history in the industry can help you not only spend in the right places, but save you a great deal on the important things like supplies, marketing and staff. When considering the expense of a franchise fee, consider what you would be paying if you did not have the support of the franchise group, you may then see the true value of the initial and ongoing franchise fees.
We hope we have been able to answer ‘How much does a franchise cost?’.