Understanding Franchise Fees: A Guide for Potential Franchisees

January 1, 2023

Franchising is a popular way for entrepreneurs to start their own business. However, many people are hesitant to invest in a franchise due to the high franchise fees. In this post, we will discuss what franchise fees are, how much they cost, and what they are used for. We will also explore why the fees should not be the deciding factor when choosing a franchise.

What is a franchise fee?

The franchise fee is the upfront payment charged by franchisors that grants you the license to operate their business for a set period. This payment makes you a franchisee, giving you the right to use the franchisor’s trademark, technology, operating manual, business systems and processes, participate in their marketing programs, attend franchisee conferences, and more.

How much does it cost?

The average cost of initial franchise fees is around $35,000 to $40,000. However, some franchisors charge more, depending on various factors such as the size of the franchise territory. As a rule, the Federal Trade Commission requires a minimum franchise fee of $500.

What is a franchise fee used for?

The franchisor uses the franchise fee for various purposes, such as franchisee onboarding, training, marketing materials, and sales commissions. However, the fees are not used for company profit, which is generated from franchise royalties.

Are franchise fees negotiable?

Franchise fees are generally not negotiable as they are set by the franchisor. However, some franchisors offer discounts to U.S. military veterans and those who buy multiple franchise units upfront.

Are the fees worth it?

The best way to determine if the fees are worth it is to talk to existing franchisees, who have already invested their money in the franchise. They can give you insights into the initial fee’s value and the ongoing costs of operating the franchise.

Franchise fees are a necessary part of franchising and play a crucial role in allowing the franchisee to use the franchisor’s established brand and business model. While the fees are essential, they should not be the sole determining factor in choosing a franchise. Potential franchisees should also consider other factors such as ongoing fees, royalties, and total upfront costs, which can vary widely between franchises.

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