Understanding Franchise Fees

A franchise fee is a certain amount of money that is paid to a franchisor by an incoming franchisee in exchange for the right to replicate the business model and concept. Under the Federal Trade Commission, which defines franchising throughout the United States, a business can only be considered a franchise if the franchisee makes a payment to the franchisor of at least $500 (annually adjusted) either before or within six months of opening the business.

As opposed to ongoing royalty fees or overhead costs , the franchise fee is, usually, a one-time payment, but can also be paid incrementally depending on the terms of the franchise agreement .

The cost of a concept’s franchise fee will be disclosed in the brand’s Franchise Disclosure Document , and is often included as a supplemental fee in addition to the outlined startup costs. Franchise fees are generally in the range $20,000 to $50,000 depending on the brand.