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There’s More to a Franchise Than the Fees

Published on October 31, 2017

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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.

About the Author: Ed Teixeira
Ed Teixeira is a recognized franchise expert with over 40 years’ experience in the franchise industry. He has served as a corporate executive for franchise firms in the retail, manufacturing, healthcare and technology industries and was a franchisee of a multi-million-dollar home healthcare franchise. Ed and Richard Chan are the authors of a new textbook, Franchising Strategies: The Entrepreneurs Guide to Success, to be published on July 1st by Routledge on July 1st. He has participated in the CEO Magazine Roundtable Meetings with business leaders from around the country and has spoken at a number of venues including the International Franchise Expo and Chinese Franchise Association in Shanghai, China. Over the course of his career, Ed has been involved with over 1,000 franchise locations and launched franchise concepts from existing business models. Ed can be contacted at [email protected].

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