fees that a franchisee must pay a franchisor


If you’re considering investing in a franchise, it’s essential to clearly understand the fees you’ll be required to pay the franchisor. These fees can vary, and knowing them in advance can be extremely useful. In this context, franchise fees and their implications for your business are worth discussing.

The Initial Investment

Franchisees often pay their first instalment of the franchise fee shortly after signing the Franchise Agreement. Often, this is a one-time payment made in a set sum to the franchisor. The initial franchise cost includes everything from the franchise agreement and systems, operations and training, and the first marketing materials.

The initial franchise fee varies in price based on your chosen franchise opportunity. When signing a Franchise Agreement, it is wise to investigate the market and the company to understand how much the initial franchise fee should be

About Franchise Fit-Out Fees

The term “fit-out fee” refers to the cost of opening and running a franchise. The franchisee usually pays the franchisor a fee for organizing the fit-out, even if the franchisor bears primary responsibility.

The fit-out charge will pay for everything from hardware and software to signage and marketing materials used to launch a franchise. The franchise business chosen will determine the final cost.

If the franchise company is in the food and beverage sector, the fit-out charge could cover the cost of a commercial kitchen, bar, cash registers, other essential operational equipment, and any company-specific branding, such as a storefront sign.

The fit-out fee will be determined by the size and complexity of the equipment and building infrastructure needed to launch the franchised firm. Conversely, fit-out costs will decrease with less hardware and structure.

Legal Fees That a Franchisee Pays

The Franchisee shall solely be liable for paying the legal expenses incurred by the Franchisor in connection with the preparation, negotiation, and execution of the Franchise Agreement.

A franchisor may only charge a franchisee for legal fees if such fees are specifically outlined in the Franchise Agreement and are related to the preparation, negotiations, or execution of the Franchise Agreement, according to the new Franchising Code of Conduct that went into effect on July 1, 2021.

Any franchisor who seeks to recoup legal fees outside of those allowed explicitly by the Franchise Agreement will be severely punished. As a result, a franchisee is not liable for the franchisor’s legal fees in connection with any notices (including termination, breach, and renewal notices).

The franchisee’s financial liability is limited to the cost of any legal services in connection with the development, negotiation, or signing of the Franchise Agreement. Franchisee is not responsible for paying any legal fees incurred by Franchisor after the execution of the Franchise Agreement.

Ongoing Fees That A Franchisee Pays

Franchisees are required to make regular payments to the franchisor as part of the cost of doing business. These payments will go toward things like royalties, marketing, advertising, administration, information technology, and the ongoing costs of doing business with the franchisor and using the franchised brand.

These costs will vary according to the franchise opportunity you’ve selected. It is common practice for franchisors to collect recurring franchise fees as a flat rate, a share of sales, or a cut of profits. Depending on the terms of your franchise agreement, you may be obliged to pay ongoing fees at varying intervals and in varying forms. It is crucial to know the exact amount of fees that must be paid and when they are due.

Other Fees You Might Need To Pay

In addition to the fees mentioned above, depending on the circumstance, you may have to pay the following fees:

  • When you decide to lease a commercial space, there will likely be additional costs that you will need to consider, such as rent, insurance, repairs, and maintenance fees. You can obtain further information on this matter by exploring additional resources.
  • It is essential for the prosperity of your business that you are knowledgeable about and stay updated with all the extra charges that may need to be paid to your franchisor or landlord.

Conducting proper due diligence is crucial to ensure that your franchise fees are just and appropriate.

If you want additional information about franchising, franchise fees etc., please call The Franchise Institute team. You can speak with us at 1300 855 435 or email us through this contact form, and one of our team members will contact you as soon as possible to answer all your questions.

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