Q: I am in the process of buying a franchise and am curious. What exactly am I supposed to get for my franchise fee?
A: Let's start with some basics.
In the language of franchising, when you use the phrase "franchise fee," most insiders understand that to be the initial check you write to the franchisor when you sign your franchise agreement. It's the cost of joining the system and is usually a fairly large flat fee.
My sense of your question, however, is that you're really referring to all the fees-and there can be many. The principal fee in franchising-other than the franchise fee-is the royalty fee or, in some systems, the continuing royalty. This refers to the checks you'll send to your franchisor on a routine basis throughout the term of the agreement. You pay this for staying in the system. While it varies from franchisor to franchisor, the royalty is typically calculated as a percentage of your sales. You may be required to send the payment each month, each week or on some other regular schedule to the franchisor. Many franchisors today don't even need you to send them a check. When you sign the franchise agreement, you give them permission to reach into your checking account and wire transfer the payment directly to them.
Before I get mail from some franchise purists, the other routine fee is usually the advertising fee. This is the payment you'll likely make on the same frequency as your royalty payments and also as a percentage of your sales. While we call it a fee, and