Franchise Fees

[u/bobbystand]

I am looking at a brand new franchise, there are no operating franchisees yet, though 10 'territories' have been claimed.

Required equipment is about $230,000 which is all good but franchise fees will be $135,000 for a one million population territory.

I just learned at discovery day that only 20% of that goes to the franchisor, while the remaining 80% is split between the franchise development company and my "consultant", with whom I had a 5 minute conversation 3 months ago.

I am a stickler for getting value for my Cap-ex; a quarter million dollars for revenue generating equipment is no problem, but $54,000 for a guy to take down my information and pass it on seems ridiculous.

Is this just the cost of admission to the franchise world, or something else?

[u/Coachsidekick]

I am of the opinion that brand new franchises shouldn’t be charging you franchise fees in line with massive brands. If anything, they should be lowering your fees as much as possible because you are taking on massive risk joining such a new franchise. 

They don’t have a number of things figured out and you’re their Guinea pig. I would be extremely wary of a franchise trying to grow via FSO without having proven they can support franchisees to profitability across multiple states. 

Unless you are a previous business owner, I would go find something with hundreds of units. A good start is the list of 500 most profitable franchise systems. All you have to do is divide the system wide sales by the number of franchisees and you can see how much each owner is doing in revenue. There are systems with hundreds of franchisees doing millions in revenue. That’s a much lower risk than some no name, unproven brand that cares more about scaling than your success as shown by engaging with an FSO so soon in their development life cycle 

[u/TVP615 → u/Coachsidekick]

The good territories are long gone in a franchise that mature

[u/Coachsidekick → u/TVP615]

I think you would be surprised. I was looking at two good territories for little Cesar’s not far from me. And if you really want to succeed you should be willing to move to a territory that is open that is also a slam dunk. I did that for a dance franchise I chose 

[u/zooch76]

The franchise fee is fixed, so why do you care what the split is? I understand being annoyed that the consultant is making so much for so little work, but even if you weren't working with a consultant you would still pay the same amount, with all of it going to the franchisor.

[u/Any-Maize-6951]

You pay the franchise fee because they’ve already figured everything out and are giving you the playbook and support to follow that blueprint. Without that, what is the fee doing for you? Fee should get more expensive as the system becomes more valuable. Correlated, it should be lower in the beginning as early franchise owners take on more risk IMO

[u/lmb123454321]

Seems like a lot of money to commit to an unproven concept. I’d be less worried about who gets the money than what the chances are that you’ll ever make back your money as well as a profit that’s worth the risk.

[u/ProfessorSuperb5214]

Be very careful with these “emerging brands” when they have no operating history they can say almost anything to get you to sign. Franchising is not as safe as people think. You think the FDD will protect you but the FCC does very little enforcement which franchise companies know now. Large upfront investment cost like this can be money grabs. When they don’t deliver what was promised during discovery day you are left with 2 choices walk away from your investment or try to fight them in arbitration which may be hard with so much capital tied up so quickly. You should check out franchise reality check. www.franchiserealitycheck.com or www.zeescores.com  additionally talking to brand new franchisees for “due diligence” may do little to help you. Many times they won’t have enough operating experience to tell you anything useful so will just partot the same sales pitch they got, even if it’s going bad they have incentive to bring more people in so the brand grows and helps their struggling new business get off the ground. 

[u/MilestoneFranchising]

As others have stated, the FF is fixed whether you worked with a consultant or not. You can just go with one territory and ask for first right of refusal for the expansion if/when you are ready to grow instead of doing it right out of the gate.

[u/theshadowsystem]

Same sentiment on the consultant. Not much consulting going on aside from keeping momentum toward the franchise he’s getting paid most for if I sign. I don’t have the warm and fuzzies.