what is lump sum

The article will tell you what the lump sum fee includes and how to calculate it.
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What is a lump sum fee in simple words

A lump sum fee is one of the main payments in franchising. This payment is made by the franchise buyer for the right to join the franchise network, as well as for the volume of documents and technologies transferred to the franchisee.
In other words, the lump sum fee is the cost of the franchise. The lump sum fee is paid one-time and is a non-refundable amount. That is, if a franchise buyer pays a lump-sum fee, starts working under the franchise, and then decides to disconnect from this network, then no one will return the money paid as a lump-sum fee.
And this does not happen because the franchisor simply crafted the agreement. When you buy a franchise, intellectual property is transferred, and it will be difficult to get it back.
Taking into account that the franchising market in our country is not highly regulated, there are no established lump sum fees. This remains a subject of bargaining and agreement between the parties.

Franchise without lump sum fee

I personally don’t believe in franchises without a lump sum fee. If an entrepreneur is ready to give something away for free, then he either makes money from someone else, or what he gives is worth nothing. In our case, it is rather both cases at once.

If the brand under which the franchisor’s company operates is not valid, and the founder of the franchise earns money by supplying equipment or raw materials, then it is quite natural that the main thing for the franchisor in this case is a large number of partners and making a profit on supplies. But such a franchise will not provide significant benefits to the partner.

Very often a franchise is called something that in reality is not one at all. A franchise can be called consulting on opening an outlet in a particular business, or, for example, a distribution program. The topic of franchising itself is so popular that every entrepreneur wants to somehow introduce this tool into their work, or at least the name of this tool.
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Why does a partner pay a lump sum fee?

Quite often investors ask the question: “What is included in the lump sum payment?” They may think that this is payment for “air”. Next, I will talk about what is actually included in the lump sum fee, and what benefits the franchise buyer receives in return. I will also list what the price of the lump sum payment actually depends on.
  • 1
    Right to use a trademark
    The power of your brand will help you both at launch and beyond. When you open a restaurant/cafe “without a name,” you will need to invest a lot of effort in promotion. When purchasing a successful franchise, the client will find you on his own.
  • 2
    Proven Business Model
    The business plan of a franchised facility has been accurately tested based on the experience of previous facilities. When opening an object on your own, the calculations in the business plan will be very approximate.
  • 3
    Help and expert assessment when choosing premises.
    The founder of the franchise certainly has experience in opening and selecting premises. You can consult with him whether this or that object fits into the overall concept, and whether the place will be unprofitable.

    Perhaps you are so impatient to open your own cafe that all the options for premises seem wonderful to you. In such a situation, someone should “cool” your ardor and weigh the pros and cons of the proposed objects. Remember, it is not profitable for the franchisor if you close in 3 months.
  • 4
    Developed design.
    The main essence of the franchise is a single style everywhere and in everything. You don’t have to figure out what colors to paint the walls in or what font to write on the sign. All this is already written down in the documents, you just need to find a responsible repairman or act as one yourself.
  • 5
    List of equipment and suppliers.
    Most likely, when opening a restaurant or cafe on your own, you will think for a long time about what size refrigerator you need, how many shelves to put in the display case, and where they buy it all. In the case of a franchise, the founder will provide you with his supplier contacts (perhaps even with discount arrangements) and give you a list of equipment.
  • 6
    Ready production technology.
    A franchise gives you a ready-made recipe and an already developed menu. You don't need to hire a chef to develop your own concept. The cost of developing a high-quality, complete menu from a good chef can be very expensive.
  • 7
    Approved service standards.
    You don’t have to figure out what greeting words employees should say, how long it takes to process an order, etc.
  • 8
    Assistance in personnel selection and training.
    Who to hire? How to train employees when you yourself are new to the business? This can be taken on by the franchise founder.
  • 9
    Operational support.
    Control and advice on running your business. It’s good to have someone who can look at your business from the outside and give their recommendations.