The franchise financials

How the fees and costs are structured

Sarah Stowe
  • Franchise fee
    From less than $10,000 to over $1 million
    Franchisors charge a fixed, upfront franchise fee for the right to access the concept, the processes and the brand. This should cover costs such as basic training, support and promotion, though many franchises include more extensive benefits. General costs such as market research, planning and franchisee recruitment may also be included as a way of passing them on to franchisees.
  • Franchisor’s legal costs
    Franchisors are allowed to pass on legal costs arising from the preparation, negotiation and execution of the franchise agreement. These need to be specified in the franchise agreement.
  • Costs associated with a lease
    If you are leasing premises for your business, the franchisor may enter into an agreement with the landlord on your behalf. In this case, you may be asked to pay the costs as a licence fee.
  • Fit out fee
    From $80,000 to $1 million.
    This is the cost of fitting out your business with all of the equipment, infrastructure and branding needed to make it consistent with brand and legal guidelines. The amount you pay will depend on the amount of work required. If your café is already set up as a food outlet with basic infrastructure in place you’ll pay much less than if it has to be fitted out from scratch.
  • Ongoing fees
    Most franchisors charge royalties, or ongoing fees, to cover continuing costs such as head office support, business strategies, training and administrative costs. There may also be a marketing levy and additional fees for IT. Percentages and costs vary significantly so this is a very general guide.
  • Royalties. As low as 4% to as high as 12% in some fast food franchises with a current norm between 8 and 10%.
  • Marketing levy. Usually 2-3%. 
  • IT fees. This is generally charged as a monthly flat fee between $60 and $400.

Ways to pay

The franchisor can charge fees in different ways.

A fixed fee or flat rate is an agreed amount that must be paid on a weekly or monthly basis regardless of business performance. This is easy to budget for and beneficial when revenue is high but it can put pressure on franchisees if revenue falls. 

A percentage of revenue payment is a sliding scale calculated on pre-tax revenue or gross income. Revenue isn’t always easy to calculate but there is less pressure on franchisees when, for any reason, revenue is down.

Red flag moment

Watch out for ‘fee creep’. Charges tend to rise so slowly they’re barely noticeable but, over time, the increase can be significant.