How much does it cost to run a franchise?

The costs of running a franchise vary across sectors and brands.

McDonalds, the world’s most recognised franchise brand, demand investments between £350K-£1.85M to own a slice of its iconic Golden Arches!  However, franchises come in all shapes, sizes and sectors and don’t always require a sizeable upfront investment.

So what costs are involved?  Let’s take a look…

1. The franchise fee – This is the initial payment made to purchase your franchise and is often a good indicator of the level of ongoing support you will receive from your franchisor. It typically includes training from the franchisor as well as advice and support on location, recruitment, and marketing.  The fee is typically paid upfront and can cost anything from £500-£300,000 depending on the brand.
2. Capital investment – This is the set-up costs of your new business and covers everything from unit rental fees to interior design, equipment, and supplies. Your chosen franchise will dictate most of what is required here but it is your responsibility to fund it.
3. Liquidity costs – Until your franchise starts to generate a healthy profit you need to maintain liquidity to keep it afloat. Franchisors will typically set a minimum net worth which you much reach before they agree your franchise.
4. Legal costs – You will undoubtedly require legal advice during the franchise purchasing process. How much legal support you will require will depend on the complexity of your franchise and any property purchases or leases required.
5. Management service fee – Also known as a royalty fee this is usually a flat fee or percentage of your sales that is paid monthly to the franchisor. The more money you make, the more you will pay to your franchisor.  Ensure this fee includes benefits to your new business such as ongoing promotion, marketing, and business support from your franchisor.
6. Insurance – This will vary depending on the franchise business but ensure you know all the insurances required and that you are fully covered before the business starts trading.
7. Marketing – Your franchisor is likely to offer some level of marketing support but to grow a profitable franchise business you may well need to consider investing in an ongoing local marketing and advertising campaign.
8. Franchise renewal / resale fee – If you choose to extend your franchise agreement beyond the initial term you will have to pay a fee. Budget for this from the outset to avoid any sudden financial shocks!  Likewise, the franchisor will charge a fee if you wish to sell on your franchise in future.

In summary, there are franchises available to suit all types of entrepreneurs and budgets.  All the above costs and fees will vary depending on the brand you choose.  If the franchise you are investing in is well established and successful then fees will naturally be greater.  And, if this is your first time as a franchisee and you require high levels of support, this will also be reflected in the costs.

A good franchise agreement will be fair and offer benefits and rewards to both parties.  Shop around, choose a brand that you can afford and confidently deliver to the market and entrepreneurial success is sure to follow!