Although it may seem like it at times, franchising is not designed to be a partnership between a Franchisor (seller) and a Franchisee (buyer). Instead the relationships is designed to provide the Franchisor with a vehicle to grow it’s business buy bringing in franchisees; who, in turn, are looking to establish a proven business and to minimize their risk of failure.
Potential franchises often think that a franchise fee is how a franchisor makes money. Although it may be true for some, the majority of solid franchise systems utilize the franchise fee to pay for the expense of finding and establishing new franchise owners.
The Franchise Fee, as it is often described by the numerous Franchisors, is the cost of putting the Franchisee into the business of the Franchisor, not as a partner, but as a participant. The fee enables then to recoup the cost of doing that. Some of the Franchisors costs include:
• The cost for a turn key systems provided by Franchisor.
• Training costs, to make sure that the Franchisee is able to operate the systems and the business o Franchisor’s satisfaction
• Marketing and advertising costs Franchisor incurs in order to find qualified franchise Candidates
• Costs of qualifying Candidates including rejecting many unqualified Candidates
• Salaries, travel, & administration, etc.
• Legal expenses to draft agreements defining the methods & terms for the Franchisee to participate (Usually the FDD and related items)
• At times, depending on the franchisor, the costs may also include franchise support during the first few months in business, possible real estate location and/or licensing.
The goal of a Franchisor is to help their owners succeed. The overwhelming majority of successful franchise systems make money by collecting monthly royalty payments from Franchisees, not buy selling the franchise units in particular. If the Franchisor is to survive and grow they must do a solid job of selecting, training and equipping their Franchisees. The Franchise fee pays for just that.