While franchising a business has advantages over starting from scratch, it also has its fair share of disadvantages. One of them is the price, as some franchising packages have additional, “hidden,” or extra costs that are only revealed upon further inquiry. Hence, when franchising a business, always make sure to ask for any additional costs and do all the necessary research to understand them. Make notes about the various packages, then compare them to see which one best fits your needs, both financially and practically.
We’ve listed some of the expenses or costs you need to be aware of and ask about when you’re planning to franchise a business.
1. Franchise fee
This is a one-time fee for using the brand’s name and trademark. The price varies between franchises, and if you’re lucky, some brands even offer this one at a discounted price or free at all! So, always be sure to inquire if this is already included in the franchise package.
If the franchise fee is a one-time payment, the royalties are an ongoing payment the franchisee pays to the franchisor for using their brand. The amount varies, depending on the profitability of the brand and other factors. Typically, it ranges from 5% to 7% of your sales on top of a weekly, monthly, or quarterly flat rate. Always check your contract and make sure you understand this part very clearly, as this will impact your business profits.
3. Licensing fee
You also have to ask if there’s a licensing fee even if there’s already a franchise fee. Both are quite similar since it’s payment for the use of their trademark, brand, technology, and intellectual property. However, licensing isn’t as broad as a franchising fee. Licensing fee focuses on the cost that allows the franchisee to sell its products, and use its materials to run its business.
4. Marketing fee
This is the cost or fee that you pay the franchisor for promoting and advertising the brand. The structure of payment for a marketing fee varies, so you should also learn to study and compare. The typical marketing fee varies from 2% to 5% of your sales, maybe even on top of a fixed monthly rate. So, read your contract carefully.
5. Miscellaneous fee
Always inquire as to what is covered by the miscellaneous fee, because this is where almost anything can be added to or covered. The miscellaneous fee can include location-based costs like renting a space. It could include processing fees for legal paperwork and logistics. The operational costs of sourcing the products, materials, using or purchasing equipment, etc., can all be included in this cost.
In the end, many still choose to franchise, even with the costs. If you have a P1 million budget, you can some of our recommended food franchises. Like we always advise, always do the proper research before venturing into any type of business. Don’t be in a rush and take the time to prepare and compare, so you get the best one for you. Good luck!