When prospective franchisees consider choosing among various franchises to invest in, the most immediate consideration is usually how much is the franchise fee and other ongoing payments like royalty and advertising fees. Although these items are an important part of the decision- making process, they are not the only items that need to be evaluated.
In fact, a recent study by Franchise Grade® indicated that over a three-year period, 2013 – 2016, average ongoing franchise fees like royalties were lower at the end of the study when compared to the beginning of the study. Among the ten major franchise sectors, some sectors like the Real Estate sector had the most significant increase in royalty rates charged to franchisees.
On the other-hand ongoing advertising fees had a slight increase. Seven of the ten major franchise sectors have seen a steady increase in National Advertising Fees. The largest increase came in the Automotive sector.
The lesson to be learned from this analysis is that most of the ongoing franchise fees haven’t changed very much. This doesn’t mean that these areas shouldn’t be considered but rather that each franchise sector and category tends to gravitate around the same fees, with slight variations. Understanding this fact is important when evaluating various franchise opportunities. For example, if franchises in the Quick Service Restaurant sector charge an average continuing royalty of 6% and you find one that charges 7% be sure that you understand why the fee is higher.
Seven of the ten major franchise sectors have seen a steady increase in National Advertising Fees.
There are some franchises that charge a higher initial franchise fee because they are very successful and are entitled to charge higher fees. It’s important to evaluate the performance of each franchise to be sure that the fees you’d pay are equitable in relation to the quality of the franchise.