Do You Know What a Franchise Really Costs?

One of the best ways to start a new business is with a franchise. Many of the top companies in the world now offer franchise opportunities. Not only do you have the right to use that company name and take advantage of its built-in market, but you’ll often find that you can start your company for a fraction of what it might cost to start a new business. The problem is that many people don’t realize the costs associated with opening a franchise. Knowing what you need to pay can help you decide whether a franchise is a good choice for you.

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Licensing Costs

According to Sukanto Tanoto, the first fee that you’ll face is the licensing fee. Also known as a franchise fee, this is the amount that you pay back to the company in exchange for using its name. Some franchise holders will also receive the right to order supplies from the same companies the head organization does or getting products directly from that company. The licensing fee that you’ll pay depends on the type of company that you buy. You might find that some cleaning companies and other smaller companies charge just a few thousand dollars. Purchasing a hotel or restaurant franchise might cost $25,000 to $50,000 or more.

Recurring Fees

Recurring fees refer to the fees that you pay each year back to the parent company. You typically need to make a new payment every year, which gives you access to the licensing and name of that company for another 12 months. Some companies that offer franchises base this yearly fee on the amount that you sell. It will charge you a percentage of your total sales. Other companies will charge you higher fees if your sales do not meet the minimum amount determined at the head office.

Operating Costs

Once you finish paying off the parent organization, you need to deal with your operating costs. You can’t expect to simply launch a franchise from the comfort of your living room or home office. You typically need a standalone location for your new business. This can include a space that you takeover in some type of mall or retail center, or you might decide to build a new building from the ground up. Operating costs also refer to the total amount that you spend on your business. This includes rent or a mortgage, utility bills, the wages you pay your workers, taxes and the cost of supplies.

Advertising Your Company

Though you have a built-in market for your new franchise, you still need to advertise your business. You cannot depend solely on customers who walk in off the street. There are different forms of advertising that can help you reach those customers, including billboards, bench signs and signs on buses. You can also use ads that run on television and the radio. The cost of advertising your franchise depends on the size of the sign, the number of ads you buy and other factors.

Franchise owners sometimes think that they only need to worry about the licensing fees and upfront costs. When you buy into an existing company, you also need to think about operating costs, advertising fees and the fees the head company will continue charging you in the future.