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How Much Should I Charge?
Deciding how much to charge for your franchise is part of a much larger process that involves budgeting for your franchise operation in general. Before you can even begin to think of what you’ll charge others for a share in your franchise operation, you must have an idea of what the entire thing is going to cost you!
Costs to Consider
Go back to when you first started your business and pull out your records. There are bound to be costs you’ve forgotten, things you paid for back then and will have to pay for again as you start your franchise that would never come to mind without those records. Some of those might include:
· Equipment
· Location rental
· Hardware
· Software
· Supplies/ Inventory
· Accounting fees
· Transportation
All of these costs must be covered in your franchise agreement. Who is responsible for paying them? If it’s you, what are the limits? Most of the time your franchisees will carry the burden of many of these costs, but that information must be spelled out. There should be no surprises once the franchisee signs the agreement.
Considering Costs, Expenses, and Fees
In addition to those earlier expenses, there will inevitably be some new expenses you didn’t anticipate. It’s your job to anticipate as many of them as possible, though, and that’s why you need to take the time to think through your costs. It’s always a good idea to look through your files, contact some contractors, and figure out what your exact expenses will be. Consider:
· Initial business costs such as those mentioned above
· The cost of increased product supplies
· Wholesale prices
· Contractor expenses
· Travel expenses
· The cost of the initial training
· The cost of other professionals (accountant, solicitors, etc.) who have assisted you with the franchising process
· The cost of advertising and marketing your franchise
· The cost of market research
· Extra time put in by you and your staff, all of whom deserve compensation
· What sort of return do you want on your investment?
Setting the Franchise Fee
Before you set a fee, look into what similar franchises are charging. Your goal is to undercut them slightly, because as a new franchise, you want to remain competitive. Remember, you may know how wonderful and successful your franchise will be, but to a franchisee making an investment, you’re an unproven risk. They will need some sort of incentive to invest in your franchise over others; franchise fees can be one such incentive.
In general, your goal is to turn a profit while still remaining competitive. It’s a good idea to consult an accountant with experience in franchising if you have any concerns or uncertainties here.
At this point, you should be able to determine an investment range, a relatively accurate guess of how much your franchise will cost to establish. This won’t be an exact figure, of course; it’s more likely to be a range. That’s okay as long as your finished price falls within that range.
With that range in mind, you’ll be able to set a franchise fee with relative ease. You know how much return you want on your investment, you know how much other franchises are charging, and you know how much of your own money will be invested in this project. With those three facts in sight, you can make a fairly reasonable assessment of what your franchise fee should be.
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