What Does a Franchise Cost?
One of the first questions asked when considering a franchise purchase is, “how much does it cost?”. Initial investments might be cut and dry but there are other expenses that should be accounted for. Instead of launching with a single lump sum figure, it is important to consider which costs are going to be a one-time payment when starting up and those that are on-going. Below is a brief breakdown of those costs that are settled upfront and those that are going to be present on a monthly or quarterly basis:
- Initial Investments: Franchise fees are set amounts, paid at the beginning of a partnership in order to use names, logos and branding of the chosen business. An established company name creates a higher recognizability and a higher rate of success. In this sense, you are paying for access to steady clientele, established procedures and a functional business plan.
- Inventory: If a given business sells physical products, it is important to consider that stocking your shelves can cost money. Depending on the type of business that you are running, this can be a large number or a pretty accessible one but will fluctuate between industries.
- Real Estate & Insurance: Finding your ideal location comes at a cost and protecting it ups the ante. Not all businesses require a brick and mortar location but for those that do, it is important to consider the cost of utilities, along with either the cost of rent or the monthly price of a lease.
- Training & Equipment: Training expenses come in the form of traveling and living expenses, but this is useless without the equipment to get the job done well. Some franchisee fees will include some of this equipment while others do not. If you are curious about what is and is not included, it is important to cover these with the franchisor.
- Royalties or Franchisee Fees: Purchasing a franchise comes with a monthly fee to the franchisor. This amount varies from brand to brand and can be paid out monthly or quarterly at their discretion. It is not uncommon for certain businesses to have a slow starting month, so it is important to be ready for such occasions.
- Advertising & SEO Fees: Some franchisees require a monthly budget for ads and search engine optimization. These work to draw in new clientele and can help your business location rank higher on popular search engines, like Google.
- Operational Costs: A franchise owner might oversee the daily operations of their business but as it grows, staff is necessary to keep these wheels turning. Staffing and utilities can fluctuate month to month, so it is important to keep a budget for these expenses.
Purchasing a franchise is an economical way to start your own business. It is easy to focus on the larger investment piece but there are more things in the works than just your overall startup fee. Before committing to a contract, make sure to speak to a franchisor for your desired business, collecting all the details and building a plan that works for you.