Tuesday, February 22, 2005

Why Should I Pay to Join a Franchise System?

Recently, a caller asked, "If I'm going to pay Royalties to a Franchise System, why do they insist that I pay an Initial Franchise Fee too?"

My answer went like this:
Most franchisors report that they're happy to break even each time that they get a new franchisee open. First there is the cost of advertising til they find an interested party. Then they must qualify the prospect and customize a territory and franchise license for them. Next comes site selection and oversight of their build out. Then training at headquarters for 1 or 2 weeks and visits by corporate staff during the grand opening.

This often consumes $15,000 to $30,000 which offsets licensing fees that are usually between $12,500 and $35,000.

While everyone hopes for a "great deal," if you are looking for a financially strong coach and mentor, you should understand that making profits through ongoing Royalties is the business model of most franchisors--not by profiting--nor losing every time a new unit is sold.

For more details on finding and evaluating franchise systems, visit The Franchise Doctor's website.