What fees should I expect to pay for my
basically two types of fees you should expect to pay for your franchise - upfront fees and
The first is
the initial upfront fee, which is what you pay the franchisor for the rights open your
franchise. Essentially, you are purchasing the rights to use the franchisor's trademarks,
business methods, and distribution rights. This licensing charge can be significant,
especially for a well-known, established franchise -- it's not unusual for it to be in the
few hundred of thousands of rupees. Often, it is also based on the value of the territory or
trading area, so the larger your market, the more you could end up paying.
that this upfront fee may be in addition to any other start-up costs you will have to incur.
The initial franchise fee may or may not include things like training costs; start-up
promotional fees; inventory; build-outs (some franchisors require your space to have
specific architectural elements); equipment/fixtures (you may be required to purchase or
lease specific equipment and fixtures from the franchisor); and any other costs that are
necessary to open your business.
also have to pay ongoing fees to maintain the rights to your franchise. Most franchisors
charge a royalty fee, typically a percent of your gross sales, not your profits. This
royalty fee can range from 1 percent to as much as 15 percent, although 5 percent is
typical. Remember, you are paying this royalty on gross sales (your total receipts, less
sales tax, returns and refunds), so it can potentially take a significant bite out of your
franchisors charge a regular fee (payable weekly, monthly or quarterly) in lieu of royalty
payments. This type of fee may also be part of the mark-up you are charged for goods or
services you are required to purchase.
It is also
common for franchises to pay a portion of the franchisor's local, regional and national
advertising and promotional costs. These fees are usually put into a cooperative advertising
fund that ultimately benefits all franchises through increased exposure to your trade name.