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franchise cost in the 

Although it may seem like it at times, franchising is not designed to be a partnership between a Franchisor (seller) and a Franchisee (buyer). Instead the relationships is designed to provide the Franchisor with a vehicle to grow it’s business buy bringing in franchisees; who, in turn, are looking to establish a proven business and to minimize their risk of failure.

Potential franchises often think that a franchise fee is how a franchisor makes money. Although it may be true for some, the majority of solid franchise systems utilize the franchise fee to pay for the expense of finding and establishing new franchise owners.

The Franchise Fee, as it is often described by the numerous Franchisors, is the cost of putting the Franchisee into the business of the Franchisor, not as a partner, but as a participant. The fee enables then to recoup the cost of doing that. Some of the Franchisors costs include:

• The cost for a turn key systems provided by Franchisor. • Training costs, to make sure that the Franchisee is able to operate the systems and the business o Franchisor’s satisfaction • Marketing and advertising costs Franchisor incurs in order to find qualified franchise Candidates • Costs of qualifying Candidates including rejecting many unqualified Candidates • Salaries, travel, & administration, etc. • Legal expenses to draft agreements defining the methods & terms for the Franchisee to participate (Usually the FDD and related items) • At times, depending on the franchisor, the costs may also include franchise support during the first few months in business, possible real estate location and/or licensing.

The goal of a Franchisor is to help their owners succeed. The overwhelming majority of successful franchise systems make money by collecting monthly royalty payments from Franchisees, not buy selling the franchise units in particular. If the Franchisor is to survive and grow they must do a solid job of selecting, training and equipping their Franchisees. The Franchise fee pays for just that.

 franchise cost in the 

franchise cost in canada 

Why are Franchisees Required to Pay Royalties? This is something I have had a few discussions about. Many franchisees believe royalties are for services rendered to the franchisee on an ongoing basis. They are completely wrong. The Royalties are for the franchisors brand recognition and the franchisors proven system.

The franchisor through franchise development (selling more franchise operations) and the associated marketing grows the brand. When the franchise hits a ‘tipping point’ in franchise units sold the brand awareness at the street level explodes. This has been experienced by many large franchisors over and over again. McDonald’s, Tim Horton’s in Canada, etc., have all sold for less before this tipping point was reached. When the bucket tipped and their name was household then the cost for their franchise went up and so did the value of each franchisees business. Royalties support this part of the franchisors business. If you don’t pay your royalties you are not only in breach of your agreement, you are also not reinvesting back into your business in an area that will have the biggest impact on sales, albeit over the longest period of time.

You can bet that in the beginning Tim Horton franchisees didn’t want another franchisee across the street from them and probably tried to hold the Royalty at ransom to object to this intrusion to their 4 square blocks they drew business from. Today, not only are they encouraging this growth they are probably buying the corner across the street from their existing Tim Horton’s. The Tim Horton franchisee is doing more business today as a result of the brand being seen and experienced by millions of Canadians and now Americans, every day. This happened because of the convenience for the consumer to buy the product and now has become part of the Canadian culture.

Why Pay Franchise Royalties? Because it makes good business sense.

 franchise cost in canada