After reading this article, you'll be able to navigate the world of franchise fees with ease
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Contributions are made by the franchise buyer in favor of the founder. All contributions can be divided into initial payments, which the buyer makes before purchasing a franchise, and regular payments, which are made during the course of work.
Franchise fees are paid by the franchisee to the franchisor. All fees can be conditionally divided into initial fees, which the franchisee pays before buying the franchise, and regular fees, which are paid during the course of operation.

Down payments

What is a lump sum payment

Of course, it's best to start with the most important payment, which is paid immediately after signing the franchise agreement.
The franchise fee is a non-refundable amount that is paid in a lump sum and is a kind of membership fee for joining the franchise network.
The franchise fee is usually paid under a commercial concession agreement and is compensation for the elements transferred under that agreement
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Investment opening
The funds that the franchisee spends on opening: recruiting personnel, purchasing equipment, hiring staff, etc. This money is not a contribution because it is not paid to the rights holder (the founder of the franchise).
Regular contributions
What is royalty
Royalty is a regular payment that the franchisee pays for the right to use the elements transferred under the franchise agreement. Royalty ensures the performance and stability of the franchise network. Royalties can be collected in different ways:

· In the form of a fixed percentage of turnover, when the franchisee reports on the financial results of his enterprise. It displays the amount of turnover in this report, and from this amount the royalty amount for the period is calculated.

· In the form of a fixed percentage of profit. In this case, the franchisee reports on the profit received, and the royalty is assigned as a percentage of the amount of profit received for the period.

· As a fixed amount per period. In this option, the franchisee pays a fixed amount, regardless of the performance and results of his enterprise.
What is a franchise advertising budget?
Sometimes the franchise program and franchise operating system require advertising or marketing fees.

This is the money that the franchisee contributes to conduct a single centralized advertising campaign. This contribution can be voluntary or mandatory, can be in the form of a fixed amount or as a percentage of turnover.

There is also a system where the founder recommends the optimal marketing budget, and the partner himself chooses in what volume and which advertising channels to use.
In addition to the listed fees, there may be various paid additional services that the franchisor can provide to its partners. Let's list some of them.
Recruitment for franchisees
Sometimes the franchisor has its own management company with an established personnel selection system. The franchise founder may offer to use the resources of his recruiters to fill franchisee vacancies.
Supply of equipment and consumables
Often, the franchisor includes its profit in the purchase amount and makes money on supplies to partner enterprises.
Opening a turnkey facility
The franchisor's management company may offer to open a partner establishment independently on a turnkey basis, having completed all the necessary opening activities. This service costs extra money, and this is also one of the services that the franchisor is ready to provide to its partners.
Selection of premises for franchisees
Of course, a large network is better at finding locations than a novice entrepreneur who has just bought a franchise. The franchisor can offer assistance in finding a location. This will allow you to open your business sooner, and the franchisor and their team will receive additional profit.
As a rule, initial staff training is included in the franchise cost, specifically in the franchise fee. Additional training for new employees may be subject to additional fees.

This is a good incentive for franchisees to avoid excessive turnover in their team.
Hidden franchise fees
Maintaining trust in franchise relationships requires adhering to the principles of maximum transparency and openness.
Any unexpected payments or expenses can cause misunderstandings among franchisees and lead to decreased partner loyalty.
It is recommended to discuss the terms of service in advance and avoid situations where a partner is forced to pay questionable fees simply because they are already in the relationship.
Franchise without fees
Some companies offer franchises without fees. Sometimes there is no royalty, and sometimes there is no franchise fee and no royalty.

Some companies offer franchises without fees. Sometimes there is no royalty, and sometimes there is no franchise fee and no royalty.
Personally, I always have doubts about such offers. Let me explain why.
Any business should be profitable. An entrepreneur has some value that they are willing to offer to the market in exchange for profit. And then there is a businessman who offers you to get something for free. Why would he do that?

There are several options:

  • He is an altruist and his mission is to make people happy at his own expense;
  • He makes a profit on something else, but then you will still pay, but only in some alternative form;
  • What he offers is not very valuable and can be given away for free;
  • He made a mistake when he made the program free, and will soon change his mind and put a price tag on it;

In any of these cases, I would not want to join such an entrepreneur.

We have listed the main franchise fees. These are the most common payments in franchise programs in our country.
Since the franchise system is primarily a relationship between two entrepreneurs, it is logical to assume that the parties are free to choose the conditions under which they work, and therefore the structure of franchise payments and fees can be anything.