10 Cheap Restaurant Franchises To Own (2022) | Franchise Coach

Initial Franchise Fee

The franchise fee is a lump sum paid to the franchisor, or parent company when a contract is signed. The initial franchise fee is paid right at the start of the agreement in order to establish the franchise relationship and for the franchisee to receive the initial services agreed upon, such as training, materials for marketing support, and any other branding collateral needed.

Although the franchise fee can vary between franchisors, some offering a lower franchise fee than others, it is still one of the key areas used to attract investors and is generally kept at a low cost. When buying a franchise from other franchise owners, this one-off fee will appear as a transfer fee, and similarly, upon renewal of your franchise agreement, you will have to pay a renewal fee. These are all typically fixed but there might be rare cases where the franchise fee can be negotiable.

Royalty Fees

These are monthly fees paid to the franchisor and are based on a percentage of the gross sales of your franchise. For most restaurant franchises, the royalty fee can range from 4% up to 12% in some cases. In many franchises, this fee will earn you ongoing support for your business, such as marketing support and collateral.

Although most commonly, this fee is based on your gross sales, it does differ between each franchise and can also be based on revenue or pretax profit.

Advertising Fees

Also based on your gross sales, the advertising fee is an ongoing fee to the franchisor and tends to be a lower percentage than the royalty fee. This will ensure the parent company is advertising your location and services on their main website and promoting your business through their network.

Other Franchise Costs

Once you have paid your initial franchise fee and have completed the franchise training, you are ready to start treating it like the business you want it to be. From now on, your main costs will be running costs associated with your physical franchise locations, equipment, and staff.

Startup costs will include rental of a location, buying equipment and interior fittings for the business, and additional sales and marketing efforts that all add up to the total starting capital. It will be up to you to keep a low cost. The ongoing costs will include monthly rent, utilities and cooking or cleaning supplies, employee salaries, and equipment maintenance.