Franchise Costs


There are thousands of franchise opportunities in hundreds of disciplines out there today. Most businessmen prefer to work with existing brand names as compared to new products. There are various factors that prospective franchisees ask themselves especially if it has to do with franchise costs. Before one decides on the franchise it is important to know what the start up costs cover. Not all businesses have the same start up costs therefore making a guess of the costs is not enough. However, there are certain common costs for most franchise opportunities.

All franchisors usually charge a franchise fee for operating the business. This fee normally goes toward employee training, site selection, equipment leasing and ongoing corporate support. An average franchise fee is somewhere around $20,000 or more. However, it may be higher for prestigious brands and lower for home based franchises. Franchise costs are normally stipulated by the franchisor and they cover purchase of equipment and supplies since the franchisor wants to create uniformity. Inventory supply amount is about $20,000 to $200,000 depending on the franchise, even before the start of the business.

Additional franchise costs may include legal fees, license to operate the business, property lease, signing, and so on. A franchise attorney will expect anything from $1,000. In case you are starting the franchise on a new building, then the costs of building  or remodeling are also included in the start up fees.

Working capital also has to be considered as part of the start up fee. The franchisor will also charge royalty fees of about 12 percent of the total revenue. The percentage will depend on the franchisor.  Building a loyal customer base usually takes some time. Therefore working capital may be used in promotional and marketing campaigns till the company gets a strong customer base.