Define Franchise Fee

Franchise fees are paid by the investor or franchisee to the franchise. The fee is the initial cost to purchase a franchise and receive operating rights. Franchise fees are flat fees.

When to Pay

A franchise fee is paid upon signing a franchise agreement. The fee is paid one time when first entering into the contract, not as a recurring fee.

Calculating the Fee

Franchise fees are set at the discretion of the franchising company. Each franchise calculates the initial fee based on industry standards and costs associated with getting the business running.

Fee Ranges

Average franchise fees range from $10,000 to $30,000 for small to medium-sized franchises and go up. A full-service restaurant franchise fee ranges from $700,000-$3.5 million; fast food restaurants fees range from $250,000 to $1 million.

Benefits

Use of the franchise company's logo and trademark, confidential company operating systems, training and business help are covered within the franchise fee amount. Additional services are spelled out in the franchise agreement.

Exclusions

Franchise fees do not include royalty and advertising fees paid to the franchise on an ongoing basis. The additional fees are separate based on of a percentage of sales after the franchisee is in business.

References

• All Business:Franchise Rules
• Entrepreneur: Buying a Franchise