As you begin considering franchise opportunities, it’s important to get all the information you’ll need to make a confident decision. Understanding your financial commitment to the franchise is a big part of that. While all franchises are legally requiredto disclose some financial information in their franchise disclosure document (FDD), a trustworthy franchisor will be even more transparent about the costs and fees you can expect.

With that said, if you’re a first-time franchisee or business owner, it can be difficult to understand precisely what your financial obligations are. You’ll have plenty of time to ask questions about the FDD during the franchise process, but first, let’s take a look at some of the key elements in the cost of a franchise.

Breaking Down Your Initial Investment

Under Item 7 of your franchisor’s FDD, you’ll find a rundown of your initial investment. This chart covers all the costs of getting a franchise ready to open. Your initial investment will vary depending on several factors, including equipment, materials, and living expenses during training. In most cases, the Item 7 chart will show you the range of what your initial investment could be rather than a single figure. Be sure to ask your franchisor what franchise financing options are available – most brands will offer either in-house financing or options with trusted third-party lenders.

You might notice that things like real estate, leasehold improvements, and construction make up a large part of the cost of a franchise for brands that require you to open a brick-and-mortar location. As a rule, choosing a home-based franchise like those in the Home Franchise Concepts family of brands is a lower-cost investment, as it eliminates the need to rent, build, or renovate. The majority of our brands can be successfully operated from home.

Your first expenditure as a franchise owner will likely  be the initial franchise fee. This fee will be due in full when you sign your franchise agreement. Contrary to popular belief, this fee doesn’t pay for using a brand’s name; instead, it covers training, marketing, and operational support. These fees are meant to be cost-effective for franchisees and franchisors alike, with a standard range of $10,000 to $125,000. At Home Franchise Concepts, qualified military veterans are eligible for 15% off the franchise fee.

A Look at Franchise Fees

Throughout the life of your franchise, you’ll also be responsible for numerous  recurring fees. More fee information can be found under Item 6 of your franchisor’s FDD. The FDD will lay out franchise fees clearly, including where they come from and how often you’ll pay them. In many cases, they’ll be a percentage of your gross sales for the reporting period. Your franchisor will let you know whether that’s weekly, quarterly, annually, or another amount of time.

While fees vary by franchisor, there are two that you can almost always expect.

• Royalties cover your use of the franchisor’s brand and proprietary knowledge. Your franchisor uses royalties to support franchisees, grow the system, and work on innovations that keep the brand competitive. In most cases, you can expect the royalty to be between 4 to 10 percent of your gross sales.
• The advertising or brand fund fee goes toward your franchisor’s marketing efforts. This fee is usually between 1 to 7 percent of your gross sales. Most franchisors provide some level of advertising support for franchisees, from ad placement to custom marketing plans. Some franchises break this down by national advertising, which is for the entire system, and local advertising, which increases awareness in your area.

HFC Makes the Franchise Process Stress-Free

Home Franchise Concepts has helped countless first-time franchisees turn their dreams of business ownership into reality, and we can’t wait to count you among them. Our franchise advisors will be by your side throughout the process, providing you with the expert advice you need to move through this new journey with confidence. We’re here to help you understand the cost of a franchise, franchise fees, and anything else that may be new or complex.

Ready to get started? Submit your franchise inquiry form today.