We get asked the question, “What is a Franchise Fee?” and “What is it for?”
The franchise fee is an amount of money collected by the franchisor when an investor (future franchisee) signs the franchise agreement. In legalese, it is the “consideration” that binds the agreement between the franchisor (seller) and franchisee (buyer).
The franchise fees are disclosed in every franchisor’s disclosure document (FDD) and are non-negotiable.
Franchise fees usually pay for costs associated with sales, document preparation, administration and sometimes training activities. Very rarely are the franchise fees a revenue source for franchisors.
The fees vary by franchise and industry segment. There is no set fee structure, but in some cases, companies adjust their franchise fees to be competitive in the market. Companies with higher than average fees find themselves on the outside when it comes to recruiting new investors when compared to others who have lower fees.
Can you get out of paying a franchise fee? Short answer, “no.” Since the fees are disclosed in the FDD, the franchisor must adhere to the filing. If there are concessions made, then the franchisor must re-disclose all current and potential franchisees. A big pain for most companies, hence the reason for the inflexibility of the fee.
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