What Are Your Franchise Fees Actually Paying For? Here’s the Full Breakdown

For many aspiring entrepreneurs, there is a real drive to be independent and own their own businesses, but (understandably) the start-up grind and uncertainty gives many pause. This is where franchising comes in as an option that threads the needle. 

In many ways, franchising offers the best of both worlds — you take on the responsibility of business ownership, but you also receive a business blueprint from the franchisor that provides a clear path forward.

However, it’s important to understand that not all franchises are created equal. As a franchisee, you’ll be paying various fees to the franchisor throughout the duration of your partnership. It’s vital to know what franchisor support will look like within your chosen brand or concept and fully understand what these fees are providing for you. 

So, what are you getting for your franchise fees? 

Below, I’ve compiled a list of 4 key functions that franchise fees and royalties support in your business:

1. Marketing and operations

This is the biggest bang for buck fee you’ll benefit from as a franchisee. Rather than starting from scratch with expensive tests and trials, on day one, you have a clear marketing and operations strategy that has a proven track record for success. Or in some cases, it is entirely done for you, turnkey.

This includes a website, SEO, pay-per-click tools and an entire suite of digital marketing tools – all of which are supported by a professional team as opposed to a hodgepodge of smaller-scale less robust options, because it has the backing of a national franchise operation. After all, you’re not the only franchisee paying in. This is a collective fee for all franchisees in your brand, so you benefit from powerful branding and marketing support without the hefty price tag that would come from seeking out those tools on your own.

While the tools necessary may be slightly different based on your market (location-based brands vs service-based brands), marketing and operations support will assist with the entire sales cycle – everything from customer acquisitions through to back office support. 

2. Real estate

Whether you’re in a location-based franchise (think boutique fitness, salons, etc.) or a service-based franchise (think lawn care, plumbing, home services, etc.), you’ll likely need real estate.

However, strategic real estate choices are far more important for those location-based franchises. Where service-based brands really only require general warehouses for equipment storage, location-based franchises require a physical space designed to franchisor’s specifications to provide products or services at the retail location. Within this category, there are two primary buckets: leased spaces and purchased/built spaces.

For these location-based businesses, you should expect robust support, a step-by-step procedure, and referrals for going through the real estate process with your franchisor. This often includes being matched with a real estate agent and receiving access to site selection demographic information (mapping, income, housing costs, etc) for specific territories that will help you to make smart decisions about location.  

Note: An emerging franchisor will likely hire a third party to do this (another national solution that may have local representation)  

Remember, until you sign a lease (even after you sign your franchise agreement), you haven’t really started your franchise. So, finding the right location is key. 

3. Technology 

In franchising, technology is responsible for some of the most important advances in recent years, and it’s one of the most important things your franchisor fees support. 

A few examples of what a strong technical online support provides to franchisees:

• A Learning Management System (LMS) should be a minimum expectation – this will include training, videos, tutorials, an operations handbook, marketing support, graphics and images, merch designs and more.
• Customer Relationship Management (CRM): this assists with customer ticketing, email follow-up support, scheduling, GPS tracking, etc., and can extend to operations, fulfillment and project management.
• Employee Management Tools: Employee scheduling software, employee functions, time clocks, etc.

And this is just the tip of the iceberg. There are plenty of brand-specific tools that streamline formerly time-consuming processes. For example, a project-based service brand like kitchen remodeling now has visualizer tools that allow an on-site professional to take a photo of your kitchen and generate options for a remodel. Another example is using AI in the sales process (AI will analyze a failed sales experience and provide a report of the entire sales visit and where it went wrong). 

4. Supply chain

When an individual starts a business on their own, there is a huge amount of research that goes into setting up a sustainable supply chain. Where are the raw materials coming from for a roofing project? How do I order the right number of branded water bottles for my fitness studio? Where do I source healthy food products for my restaurant? With a franchise, you walk in with these answers on day one and have a clear system for re-ordering and ensuring your supply is maintained at all times.   

Whether it’s equipment, food products, proprietary products that must be the same at every location, or other supply demands, you must have access to reliable vendors. Franchisors will have a list of preferred wholesalers that the franchisor sources. 

Continuity with supply chain systems means consistent quality, cost efficiency and reliability. By using these tools, you’re a step ahead of the game. 

So while you must understand your specific franchise fees and royalties so you are clear on where these fees are being used, with a strong franchise brand, you can expect franchisor support to help with many of the time-consuming and arduous tasks that keep many business owners from ever getting started.