Are Franchise Fees Negotiable?

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Franchise fees are usually not negotiable but that fact has as much to do with the government's disclosure requirements than it does with a company's unwillingness to bargain.

The Federal Trade Commission requires that any material change or consideration given to one new franchisee must be disclosed to other prospective franchisees. Therefore, if a company negotiates a different franchise fee with one person, they will then have to stop the sales process with everyone else they are talking to, file an amendment to their current franchise disclosure document (FDD), re-disclose everyone in their pipeline with the new FDD and then they can begin the sales process anew with all these other folks.

As you can imagine, this would be a real pain and quite expensive to go through, so franchise companies usually just refuse to negotiate their fees in order to avoid the hassle.

The most common area that is negotiable in franchise agreements with strong opportunities is the territory definition. Most franchises grant an exclusive territory for the franchisee to operate in. The boundaries might be zip codes, or political boundaries such as city limits or they might be a fixed distance from a specified point like the unit location. In any case, you will often find that there is a certain amount of flexibility in defining the territory that leads to at least some degree of negotiation.

You can also sometimes bargain the amount of services that will be provided for the fees you are paying. As an example, if the franchise fee covers the cost to train two people and you want to bring three people through the training class, it is fairly common to receive consideration for such a request. Another example might be related to the amount of in-market visits you receive from real estate assistance staff. Perhaps you can get two visits instead of one if you ask.

In any case, be sure to ask the franchisor what types of things they will typically negotiate on. They would rather steer you toward the points where they can give a bit than have you focused on ones that they cannot compromise.

Related: Five Questions to Ask Franchisees Before You Become One
Related: How Risky is That Franchise?

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