Tuesday, September 29, 2009

Are the Franchising Fees Worth It?

{In this section we answer questions commonly posed by franchise buyers. To submit a Query, please E-Mail us.}

Q. Does it really make sense to pay Licensing Fees and Royalties to a franchisor versus starting a new business independently?

A. Studies show that almost 50% of all consumer purchases are made through franchisees. Less than 5% of all US businesses are franchisees. That reflects a 10 to 1 ratio!! Obviously, franchised companies are outperforming their independent competitors. Given the fact that many franchisors arrange group discounts for inventory, equipment, and advertising, it seems obvious that the amount of money available to the franchise owner (even after royalty payments) exceeds the dollars available to independents in the same industry. Naturally, the savvy buyer must verify that these statistics apply in the system you're evaluating.

If you had taken the great risk encountered by the Franchisor and made the costly errors most start-ups encounter, you could avoid the expenses involved with franchising. Yet the dollars lost by experimenting without a proven business plan may well exceed the fees franchisors charge. Don't get caught in the "perfect world" syndrome, wishing that you could enjoy the high sales, low risks, and reduced costs of franchisees, yet not having to pay for these benefits.


Finding the franchise that's right for you is a difficult task--just as time consuming as finding a job. When you uncover a company that sounds intriguing, ask for their marketing package. If what you read, spurs your interest or raises questions, call the franchisor or fill in the qualification sheet. Often a buyer will draw an incorrect conclusion about some aspect of the venture and therefore reject the opportunity. Every franchisor will be happy to explain their operation--if you call or write. Don't fear a "high-pressure" salesman. If you simply say "I'm no longer interested in your company," they will stop calling.

Your business venture will not find you! If you truly want to succeed, you must take the initiative and do your homework diligently, until you've found the company that meets your needs.

Please feel free to E-Mail any Questions or Comments.