What do these advantages cost?
To gain these advantages, you will generally pay an upfront fee (called
a “franchise fee”) that often ranges from $10,000 to $35,000, a
percentage of your gross sales (called a royalty or ongoing service
fee), and contribute to a systemwide marketing fund (often 1% -3% of
gross sales). In addition, you must give up a certain amount of freedom
to do as you please, because you agree to follow the requirements and
policies put forth by the company offering the franchise program
(called the franchisor).
You (the “franchisee” or “franchise owner”) make the investment in
the location, the build-out, the equipment, fixtures, vehicles, etc.
required to open and operate the business. There are franchise
opportunities with initial investment requirements of less than
$10,000, and others that range into the millions. According to the International Franchise Association, the average franchise investment, excluding real estate, is between $350,000 and $400,000.
There’s no guarantee of success, and if you fail, you lose your
investment and may be on the line for commitments you made, just as if
you started your own business.
That’s a very simplified overview, and there are lots of variations.
But, in a nutshell, you gain a certain number of advantages, tools,
trademarks and programs in exchange for an upfront fee, a percentage of
your sales and the obligation to follow the system and agreement signed
with the franchisor company.
There’s no such thing as a risk-free investment. Even in franchising.
“Buying” a franchise is not a magic ticket to success, and not all
franchise opportunities are created equal. Many provide benefits that
far outweigh the fees paid and the freedom sacrificed… Many do not.
Likewise, many would-be entrepreneurs thrive in the structured,
implementation-oriented environment of a franchise, while others feel
stifled and repressed.
If you’re considering business ownership, it is definitely worth
looking hard at the many promising franchise opportunities emerging on
the scene. In the end, you’ve got to make the determination whether
franchising is the right path to your business and lifestyle goals, and
if so, which franchise opportunity and company are best.
In the weeks to come, I will be posting in-depth advice for finding
and evaluating promising franchise companies. Feel free to subscribe to
our feed, or download our free franchise guide (see button on top
page). Also, read 10 Criteria for Choosing a Franchise at FranBest.
What do you think? Leave a comment or question.
Sean Kelly is a 20 year veteran of the franchise industry, and founder
of the award-winning marketing firm IdeaFarm. In 2006, he founded the FranBest franchise networkbest franchise opportunities, the top new franchises, franchise marketing, franchise public relations and small business marketing. Contact him at seankelly[at]ideafarm.net.