Why do franchises require an initial franchise fee?

Andrew Gibbs, Head of Business Development

So you’ve started looking into running your own business and you’ve come across the concept of franchising. The only red flag is that you’ve noticed most franchising opportunities come with an up-front investment fee. If you’re new to the world of franchising this can be quite daunting, but don’t let it put you off.

Initial franchise fees can range anywhere between £0 and £100,000 and they vary depending on the support, tools, and systems you are given to run your business successfully. The brand’s reputation will have the largest impact on the initial franchise fee, as it takes years to build a well-respected brand and if, for example, a customer has a bad experience or regulations aren’t followed it will negatively impact all franchisees and the franchisor themselves. 

Entrepreneurs invest in franchising because it has proven to be more successful than starting a business from scratch. There’s the tried and tested business model that works, a brand that customers already know and love, and a network of support on hand for tips, tricks, and general support. It’s important to find out from the franchise you’re interested in, what the initial franchise fee covers, and what is included in the franchise package you are investing in.

You will find that most franchises are flexible when it comes to their fee. Some will require the entire franchise fee upon contract signing, whereas others may require half the fee initially and will spread the remaining fee throughout the contract term. 

For example, we have three different franchise models with three different up-front franchise fee requirements. Make sure you consider each franchise carefully and speak to franchisees if you can, to find out how they feel about being part of the franchise network. That way, you are weighing up the cost of a franchise to the return you’ll see through support and potential growth.