Cost of Starting a Franchise
Franchises can cost a lot of money, or they may only cost a little. It all depends on the type of franchise, the company selling it, and the terms involved in the contract.
For a franchise that has a well-established name behind it, and a brick and mortar business, it may cost in the hundreds of thousands of dollars.
A Franchise May Have Several Factors in the Actual Cost
When you want to know how much a franchise will cost, it is essential that you understand that there could be several figures involved. The figure that you will often see associated with a particular franchise is the fee that goes to the company at the time of purchase.
This fee may be small or quite large. It is the company that sets the figure, but it may not be the only cost. A larger investment does not necessarily mean a greater likelihood of success.
Royalties May Also Be Required
Many companies require that royalties be paid and these are usually paid on a monthly basis. The royalty may be either a fixed amount, or it may be a percentage of the profits – typically between 6 to 10%.
The royalties go to the company and are usually used to build the company up – in product development, marketing, or new store growth. As the company’s brand is built up, it is both the franchisee and the franchisor that will benefit. Although the visible need for a monthly royalty to be paid may become lost, it is beneficial in the long run.
Startup Costs Are another Major Consideration
If the business has need of a brick and mortar building, then you will also have many additional costs.
If you do not buy an existing business, you will need to buy or lease the property, buy the equipment and inventory, get the licenses and much more. These costs could be as much as the initial payout to the franchise company – or more.
These costs are greatly reduced, however, if you start a home based franchise business. Since you already have your home, you simply find a room to put it in – or build a separate one.
Training Costs May Need to Be Added
A franchise company may or may not include some or part of the training in with the royalties. It is possible that other, more advanced training may be available which is not covered. You may have to pay for all training apart from the royalties. You should know what is included in the franchise business package so that there is no misunderstanding later.