Cost of buying a master franchise
The financial issues of buying a master franchise invariably occupy much time. While there is no set formula for calculating initial and ongoing franchise fees, there are some parameters, which can afford some guidance.
Ensure the initial fees are based on a rational system measuring value and take a long-term view of the potential for the franchise business.
You will tend to incur three sets of costs when becoming a master franchise owner:
- License fees charged by the foreign franchisor
- Set-up costs arising from the establishment of the pilot unit
- Set-up costs linked to the setting up of a local franchise infrastructure
How to calculate the master franchise fees
- Seek maximum flexibility over payment of initial fees
- Agree on appropriate up-front payment.
- Agree an equitable split of continuing fees and/or mark-up from the sale of products or provision of services.
- Take into account the actual cost to the franchisor of dealing with the master franchisee, helping set up the business and assisting in proving the concept.
- Compare the cost to acquire the requisite know-how and skills to operate a similar business in target territory.
- Consider the value of the territory based upon the projected number of units, which could be established.
- Estimate the aggregated amount of initial franchisees, which could be charged by the master franchisee to his sub-franchisees in the development of the network.
Other cost factors to take into account
- Costs of translation/adaptation of manuals
- Costs of local market research
- Cost of negotiating master franchise via correspondent lawyers and other professional fees
- Costs of transportation of material
