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Are Initial Franchise Fees a Good Predictor of a Good Franchise System?

 

If you are serious about purchasing a franchise then you more than likely have begun researching different franchises and narrowing the list down to ones you are really interested in.  You have probably noticed that the costs of purchasing a franchise vary widely from system to system.  Although price is one of the easy ways to differentiate between franchises and will likely factor in your ultimate decision, it should not be the only factor.  You may be thinking, “The initial franchise fees are pretty low so it must be a good deal right?” Not necessarily.

The amount of the initial franchise fees are not a good indicator as to whether the franchise is a good deal or even a good franchise system for that matter.  First, you want to look at what you are actually getting in exchange for the initial franchise fees and whether the fees seem high compared to the services you are receiving for it such as training, opening support and build out.  Next, you will want to look at all of the other fees, like the royalty and advertising fees, listed in Item 6 as well as the estimated initial investment provided in Item 7 and what services you receive in exchange for these fees.  Finally, you will want to talk to other franchisees to get a better idea of how much they invested, how long it took them to become profitable and what kind of support the franchisor actually offers in exchange for the fees it collects.  By doing your due diligence, you should be able to get a better picture of the value you actually receive for the cost of purchasing and operating the franchise.  Whether the franchise is a good deal or a good system is less dependent on the amount of the initial franchise fees and more on whether it is a good fit for you personally and whether the franchisor has the systems in place to provide adequate support to its franchisees in exchange for those fees.