Frequently Asked Questions
What are franchise royalty fees?
Franchise royalty fees are typically a fixed percent of your gross sales or revenues. They give you the right to use a franchisor’s brand and operation system. These fees pay for several benefits that you receive as a franchisee: ongoing training and support, advertising, marketing, research and development, and more.
Franchise royalty fees can vary depending on the franchise. Most franchises charge around 5% of gross sales, but they can be lower or higher depending on the industry. Some franchisors charge a flat monthly fee instead of a percentage. Some franchisors don’t charge a royalty fee, however they’ll include that cost in the products you are required to buy from the franchisor.
How much money do you need to start a franchise?
There are franchise opportunities for every budget. Some franchises allow you to work from home, such as cleaning and landscaping franchises, so they generally require a smaller investment than a franchise that requires a physical location such as a restaurant or a retail store, for example.
Several franchises offer financing options, but that doesn’t mean that they do not expect an investment upfront (“minimum cash required”). This amount, again, varies depending on the industry and franchise in question. In general, the minimum cash required is around 20-30% of the total investment amount.
What is the difference between a franchise and a business opportunity?
A business opportunity is the sale or lease of a product, service or equipment that will allow the purchaser to start a business. This includes distributorships, dealers, network marketing, vending machine routes, product licenses and more. A business opportunity offers flexibility to the purchaser, as they can customize certain aspects of their business to their tastes.
Traditionally, after the purchase of a business opportunity and the initial training period, there is no follow up training or ongoing support.
On the other hand, a franchise offers ongoing support and training throughout the years. A franchise also offers marketing and advertising services, as well as services such as lease negotiation, financial assistance, and some franchises even offer call center services or client recruitment services… A franchise allows an individual or group (franchisee) to market a franchisor’s products or services on a territory. A franchise offers long term consistent support and more guidance in launching and running a business on a day to day basis.
What is a typical day like for a franchisee?
This is an important question to ask a franchisor before signing your franchise agreement. Learning about the day-to-day tasks for a franchisee will help you get a clear idea of the work needed to run your franchise efficiently. A franchisor will be able to detail which tasks and responsibilities are important for your franchise’s success.
You should also contact current and past franchisees to ask them questions you may have. Discussing with franchisees will give you an honest perspective on the franchise opportunity you’re looking to invest in. Be cautious of a franchisor who discourages you from reaching out to other franchisees, that is a big red flag in determining whether the franchise is a good fit for you.
Why should one franchise their business?
If your independent business has proven to be successful for several years, you might want to grow your business and expand into new territories. Franchising is the most cost-effective method of expansion. If your business has become a “well oiled machine” and its methods and operations can be replicated, franchising can be a great way to grow your business without moving into a new territory or starting from square one in a different city. Many businesses have successfully franchised and expanded to international markets in a variety of industries, so it’s a tried and proven growth vehicle for businesses.
