The cost of a franchise depends on the franchisor and industry, as well as a myriad of other factors. Some of these factors include the size and location of your franchise.
Different business concepts carry different price tags, with lodging franchises requiring the largest initial investment and ongoing expenses (total investments range from $4 million to $6 million), followed by full-service restaurants (from $700,000 to $3.5 million), fast food restaurants (from $250,000 to $1 million) and auto repair (from $200,000 to $300,000). Mobile and home-based business franchises make up the most affordable buy-in category.
In order to become a franchisee you have to pay a franchise fee, except in rare circumstances. Franchise fees generally start at less than $10,000, which is most common among mobile and home-based business franchises, and can exceed $100,000. The average franchise fee runs from $20,000 to $30,000, and each franchisor has its own set of financial requirements a franchisee must meet to qualify.
Even if you have the franchise fee in cash, you will need to make an initial investment in your business, have a set amount of unborrowed funds readily available to you, a net worth that meets your franchisor’s minimum requirement, and working capital to support your ongoing expenses to the extent that they are not covered by your revenue. Depending on your business, you may need as little as two or three months or as much as two or three years worth of working capital. The franchisor should provide an estimate.
You will incur initial and ongoing costs. Upfront, your costs may include the franchise fee, an initial cash investment, professional fees (e.g., legal services), insurance, employee training, operating licenses, inventory, equipment, and the numerous costs associated with a retail location such as rent, outfitting a store with fixtures, equipment and seating, décor, signage, and landscaping.
On an ongoing basis, your costs may include paying royalties to your franchisor — generally this is 4 to 6 percent of your revenue — advertising fees, equipment maintenance, employees, insurance, and inventory.