Costs? Costs! Costs…
Does franchisor want to spread his brand and ideas though out the country or ever more? Yes! But the main reason for most of them is earning additional money. Why not? He spent his time, money and invented the system of business that earns money for him. He tested it and he’s ready to help others to do the same but for less money and time. To my mind it’s fair. But it’s necessary to remember that different people and different companies evaluate their experience differently.
So, franchisee costs vary. Not all of them go to franchisor. I can even say that good franchisor will try his best to make some of these costs lower (for example, helping to buy on a wholesale-basis).
In general they include all or some of the following items:
1. Initial franchise fee. In most cases it’s non-refundable
2. Marketing expenses that include fees to promote opening
3. Royalties, often calculated as a percentage of total revenue, gross or net profit. It can happen that franchisee has to pay royalties even if he’s unprofitable
4. Operating licenses (when necessary), insurance and legal fees. Thinking about this franchisor has to take into consideration not only cost of the license but time to get it.
5. Training costs. Franchisors usually include training in their package, but it’s good assume some costs
6. How much inventory is enough for successful activity, and what must franchisee buy from the franchisor?
7. Expenses for renting, building or equipping the facility
8. Employee salaries including administrative personnel and accountant
To be prudent and to get more realistic picture, I think it’s OK to add from 10 percent to 20 percent.