Different franchise fees
by Colin Chadwick QFP – Director of Franchise Development, Royal Bank of Scotland Group
There are several differences between an independent business and a franchise business; the fees associated with being part of a franchise system and how the franchisor makes money seem to be the most salient.
The Franchise fee/License fee is the fee paid by a new franchisee to become part of the franchised system. It is paid upon signing the franchise agreement. The franchise fee generally consists of a fee covering training, recruiting and various other initial costs for starting up the franchisee’s business.
While the franchise fee is paid only once, the franchisor will also charge the franchisee an on-going fee. The most common method is to charge a Management Service Fee, which will be expressed as a percentage of the franchisee’s turnover. Some franchisors may take the Management Service fee as a fixed fee. Alternatively where the franchisor provides the products and materials it may levy a mark up on the products and materials provided.
In addition to the aforementioned, it is a common practice for a franchisor to charge their franchisees an ongoing monthly fee as a contribution towards or in some cases to finance entirely some form of central advertising or marketing fund. The Marketing levy/Advertising levy is for national advertising, marketing, publicity and building the franchise company’s brand on a national level which in turn should benefit the franchise network.