Advisory Dec, 19 2009

Gate-pass to franchising

Franchise fee is one of the main aspects of franchise business. But before paying, you must know the nitty gritty of franchise fee. Read further to know the importance of franchise fee.

By Ramanjit Kaur
Feature Writer
Gate-pass to franchising

Franchise fee is the amount of money paid to the franchisor at the initial stage of establishment of a franchise business. It is a mandatory investment that every franchisee has to make before signing up the franchise agreement. Basically, there are two types of fees in a franchise business: the franchise fee whereas royalty fee ensures the association with the parent company. As S.Ravikant, COO, Titan Eyewear Division says, “The sign-up fee is more of a token fee and is extremely reasonable as it partially covers the launch activity and architect’s fee.” It is a one time fee and its amount varies from company to company. For instance, the franchise fee of Sagar Ratna is 15 lakh. Similarly, Jumboking, charges ten per cent of the total operating cost as their franchise fees.

Franchise fee is fairly a large amount of money that is usually fixed according to the potential of the location. However, sometimes franchisors offer discounts or concessions depending on the location of the franchise outlet. For instance, if a franchisee owns a store at a high traffic area that can assure good sales then he will have to pay high franchise fee. . Similarly, if a place has limited footfall then the charges are less. In other words, a franchise fee is fixed on the basis of the apt location.

Criteria of franchise fee

Besides locations, there are other criteria like success of the brand, training duration, marketing support, and use of tried and tested business strategies. In short, you can say that franchise fee is a sum total of all the services provided by the franchisor to his/her franchisees.

Fee for marketing support

Every franchising company invests huge amount of money for promoting his/her brand to boost sales. Moreover, the company with the nationwide marketing/ advertising strategy helps the franchisees to save money and make them more capable to afford the expensive advertising. But the franchisees have to pay the marketing fund that is either collected as a fixed amount along with the initial franchise fee or a percentage of net sales based on monthly basis.

Training fees

Moreover, the franchisee also has to pay the training fees. Trainings are required to enhance the operational and management skills to run the franchise efficiently and profitabily. It helps to meet the benchmark standards of the parent company. However, the success and failure of a franchised outlet depends on the capability of the franchisee to replicate the standards of the brand in order to flourish successfully.

Franchisor’s obligations

A franchisor provides all the necessary support to the franchisee to establish the business. Some of them are as follows:

  • The right to use his/her brand name, trade décor and a successful operating system.
  • Selecting the right location for the franchised outlet.
  • Franchisors help to purchase the required equipments, products and other products.
  • Franchisor assists in marketing at the local level and also provides written operating manual.
  • Franchisors even impart pre-launch training to help the franchisee understand the know-how of the business.

In order to operate a franchised outlet productively, and enjoy the leverages and services, it is absolutely reasonable to charge franchise fee from the franchisees.

Related: Strategic means of expansion

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