Breaking Down Franchise Fees: A Guide to Structuring Costs for Success

Understanding franchise fees is a vital part of setting up a successful franchise model. These fees not only support your business as a franchisor but also ensure franchisees receive the tools and resources they need to thrive. For businesses in New Zealand considering franchising, knowing the typical fees involved can help you plan effectively and attract the right partners.

Franchise Fee: The Initial Investment

The franchise fee is an upfront payment franchisees make for the rights to operate under your brand, access established systems, and utilise intellectual property (IP). Typically ranging from $20,000 to $50,000, the franchise fee reflects the value of the brand and operational framework being provided. For instance, Subway’s franchise fee sits at around $35,000, while McDonald’s charges approximately $70,000. Structuring a competitive franchise fee is essential to attracting franchisees while supporting your growth strategy.

Training and Onboarding Costs

Training fees cover the resources needed to prepare franchisees to operate their business effectively. From operational systems to customer service protocols, these costs reflect the direct expenses involved in equipping franchisees for success. Comprehensive training not only builds franchisee confidence but also ensures consistency across your network, which is key to building a reputable franchise model.

Equipment and Tools

Many franchises provide a start-up kit for franchisees, including tools, uniforms, and marketing materials. Offering flexibility in this area—such as allowing franchisees to use their own equipment if it meets your standards—can make your franchise more accessible. Lowering barriers to entry in this way often appeals to franchisees and supports their journey into self-employment.

Premises and Setup Costs

For franchises that require physical locations, franchisees are responsible for additional costs such as premises design, fit-out, signage, and furniture. While these expenses can vary, having a clear structure and support in place ensures franchisees can get their location up and running smoothly. At Tereza Murray Franchising, we help businesses structure these processes efficiently to maintain consistency and ease for franchisees.

Marketing Contributions

A successful launch often requires a robust marketing strategy. Franchise systems typically include a marketing fund where franchisees contribute a percentage of gross revenue to support shared campaigns. This ensures cohesive messaging and brand promotion across the network. Structuring this contribution fairly, particularly for high-performing franchisees, is critical to maintaining trust within your network.

Ongoing Royalties

Royalty fees are a vital part of a franchise model, providing a steady income stream for the franchisor. These fees, often calculated as a percentage of gross revenue, typically range between 2% and 30%, depending on the industry and the support offered. Fixed-fee or profit-sharing models may also be suitable in specific circumstances.

Additional Fees for Centralised Services

To streamline operations and maintain quality, some franchisors charge additional fees for centralised services such as call centres, billing platforms, or technology systems. These fees help fund the resources that franchisees rely on daily, ensuring smooth operations and consistent support.

The Importance of a Strategic Approach

Franchising is a powerful way to grow your business, but it requires thoughtful planning and transparent communication with franchisees. Structuring fees that reflect the value you provide while remaining competitive is key to attracting and retaining high-quality franchisees.

At Tereza Murray Franchising, we work closely with business owners to design tailored fee structures that support both franchisors and franchisees. With the right strategy, you can ensure your franchise network is not only profitable but also sustainable for the long term.