What are the real costs associated with the franchise? There are several fees that come with a franchise and you have to understand them all to get the whole picture:
• The franchise fee: This is the charge to buy the system and use the logo, etc. Usually not astronomical, it can run between, say, $5,000 and $50,000.
• The build-out: This cost may surprise you. If you buy a retail franchise, the franchisor will want you to build the store, according to their specifications of course. This may mean hiring an architect, leasing or buying a building, remodeling and so on. It easily could be hundreds of thousands of dollars, or not.
• Other costs: What about equipment leases, monthly advertising fees, or ongoing royalty payments?
What about exclusivity? In all likelihood, you do not want competing businesses of the same franchise in your neck of the woods. Find out how big your exclusive territory is, what sort of commitment you get, and for how long. And, if you do get exclusivity, do you also get an option for new franchises in the area? Multiple units can be sweet.What’s the deal with suppliers? If the franchisor mandates that you buy supplies directly from the franchisor, or from a franchisor-authorized dealer, they better have a pretty nice deal in place for you, too. If not, not only will your choices be limited, but you will be unable to shop for a better price.
How much money can you reasonably expect to make? Maybe not surprisingly, few franchisors offer this sort of information, and the reason makes sense: If you don’t make as much, you just might sue. So mum’s often the word on their end.
Because of that, and for other reasons as well, it is vital that you meet with as many current franchisees as possible as part of your research. How much do they make? What is the franchisor really like to work with?
Are franchisees generally happy or unhappy with their choice? You can learn these sorts of things best from current franchisees.
Photo by Subway.
Franchise Business on October 19th, 2007 at 4:49 pm
Franchise fees can be exorbinant and often counter productive to successfully starting a franchise. I offer a Hookah Franchise and would love to interview you more about Franchises.