You have to find the right financial balance as to what is fair for the franchisee and what is reasonable for you. Getting the amount of these fees right is the key to building a successful franchise model where all parties can make a profit.
Initial Fees
The initial fee is a payment from the franchisee to cover the expenses that you have incurred to recruit, train and support them during the set-up phase of their new franchise. You shouldn’t profit from the initial franchise fee as the full amount should be invested in preparing the franchisee to run a profitable business. Keeping the franchise fee as low as possible also enables you to compete with other franchise opportunities on the market.
On-going fees
There are also fees that fund your on-going relationship with your franchisees. The regular royalty fee, also known as a management fee, is generally charged as a percentage of gross sales achieved by franchisees. This covers the cost of the on-going training and support that you provide, as well as the upkeep of the franchise system.