Are Franchise Fees Negotiable?

Looking to jump into the world of business ownership? If you’re not sure where to start, or you’re interested in being a part of something bigger, franchising can be a great choice. However as with starting up a business yourself, an investment is required, of both time and money. But what franchise fees exist and are franchise fees negotiable?

Franchising is a great way to get into business for yourself, but not by yourself. You enjoy the satisfaction of starting up a business, but you’re using the brand and proven business model from the franchisor. The business is yours. You’re just using the brand under license. Access to this brand is covered in the form of franchise fees. But what are they and why do they exist? Importantly, can they be disputed?

Investing in a Franchise, The Fees Involved

There are several costs associated with becoming a franchisee. Costs is probably the incorrect word to use here, as your financial input is merely an investment and once trading, it’s only a matter of time before you make this back. The main “fee” is the initial investment. This can be split into two or more parts:

1. The Franchise Licence Fee – Access to the brand, training and support, with the tools of the trade to get started
2. The Franchise Investment – This may combine with the license fee. An initial fee, the investment is the money you need to get the business off the ground. Varying considerably between franchises, this includes anything from uniform to a full shop fitting.
3. Royalty Fees – Ongoing fee for continued access to the brand, paid monthly usually. How much depends on the franchise agreement. It might be a percentage of sales, turnover or a fixed amount each.

For some franchises, there may be times where the above fees are questionable.

When Might You Want to Dispute a Franchise Fee?

There are times when you might want to dispute or negotiate the franchise fee or investment. Not all franchise fees are negotiable, however franchisors may be willing to make an exception under certain circumstances. Because fees are centered around the franchisors own costs, the principal is that the said costs will all be the same for all franchisees. Generally, all franchisees use the same supplier, often working with the same partners. The similarities between franchisees, the replication of a business model, and the minimal variation mean that costs are pretty much the same across the board.

So, when might you want to try to negotiate a franchise fee? Here are some scenarios.

You Already Have Tools, Software or Equipment

Maybe you are investing in a takeaway franchise and already have a restaurant. You have equipment, you have staff. Or perhaps you’re investing in a car repair garage franchise and already have lifts and tools. Having this equipment already may leave the investment open to negotiation. In many cases, franchise investments are advertised as “minimum investment”, meaning the actual investment required will vary subject to your status. However where a franchise is advertised as a fixed cost, you may feel the figure is disputable. Talk to the franchisor to explain this.

Contrasting Competitors in a Market

If you’re exploring the different franchises for sale, balancing out the pros and cons of each opportunity that interest you can be challenging. Especially if they’re in the same or similar sectors. Maybe you’re interested in buying an oven cleaning business. You might find in that case, that the business models are similar, in terms of offering, but you want to negotiate a price difference using a competitor’s market value.

Concerns Regarding Territory Demographic

Typically a franchisee will invest in the rights to run a business in a selected area. This might be formed up of a number of different postcodes, each totaling a number of households – or potential customers. This territory mapping solution means all franchisees can work a similar number of prospective clients.

Questions and challenges can arise with mapping of franchise territories. What if your suggested franchise territory has less population density? For example say you’re a van based franchise. To up your customer potential to that of other franchisees, your territory must expand greater area compared to one that might be concentrated in a smaller area. You end up needing to travel further, spend more on fuel, which can not only reduce the number of potential customers per day, but this drives your own costs up – and prices. Concerns like this, thoroughly researched, can be the foundations for a negotiation on royalty fees. You may also find that if a neighboring territory is available, the franchisor may be open to negotiation to sell you the territory at a negotiated price.

Speak with franchise consultants and thoroughly explore your options before starting any form of negotiation. Franchise fee negotiations aren’t universal.

Can You Negotiate Franchise Fees?

Whether franchise fees are negotiable is up to the franchisor. The license fee almost certainly won’t be negotiable. It’s not fair on other franchisees. The investment may be negotiable. Often the investment varies anyway subject to factors franchise specific. But if you believe that it could be disputable, speak with the franchisor. Such as, if you already own required tools, or if you already work with a supplier. Be aware that the franchise agreement could reference the franchisor’s own partners and suppliers, binding you into a contract where you’ll only be permitted to work with approved suppliers. It’s a good idea to speak to a franchise lawyer or consultant before signing anything regardless of whether you own an existing business. Royalty fees are not usually negotiable. They’re usually a fixed percentage of your turnover, or a fixed amount each month, the same for every franchisee. But as with the points outlined above, there may be times when the franchise royalty fees can be disputed or negotiated. Speak with the franchisor to see whether there may be some leeway with agreeing a price that works for both you and them.

Should You Negotiate a Franchise Fee?

So while it’s entirely possible to negotiate franchise fees the question of whether you should or not remains. The decision to dispute franchise fees does not come lightly. You risk damaging a relationship with the franchisor. While a poorly managed negotiation could suggest poor financial management on your own part. You shouldn’t try to haggle your way into a franchise. Franchising demands mutual respect from all parties involved and the trust between franchisor and franchisee is what leads a successful franchise network.

Prior to negotiating a franchise investment, arm yourself with thorough research into the franchise, similar franchises, and market information. Prepare a good business plan as well and remember to tread lightly and respectively.

Could you be a business owner this time next year? Explore a world of franchises at Franchise Planet.