One of the major benefits of investing in a franchise over starting a business from scratch is that you can harness the trademarks, identity and built-in customer loyalty of an established brand. However, in exchange for this, franchisees must pay a franchise fee.
What is a Franchise Fee?
There are a number of costs involved in buying a franchise; one particularly important one to understand is the franchise fee. This is an initial up-front cost paid by the franchisee in order to start operating a franchise business.
Franchisees must make this one-off payment to start using the franchisor’s name and business model and receive the necessary support to get the business started – essentially you are paying to enter into the franchise partnership.
How Often Do You Pay Franchise Fees?
Not to be confused with royalty payments, the actual franchise fee is a single one-time payment paid at the beginning of the franchise agreement.
While it is a one-off payment, it’s important to remember that there are other startup costs involved beyond the franchise fee – the franchise fee is just a portion of the total investment.
How Much is a Franchise Fee?
The cost of a franchise fee can vary dramatically depending on the franchisor, industry and the kind of agreement signed. Initial franchise fees can vary from £5,000 to £25,000 or more if it’s a major brand. The exact fee will really depend on your chosen franchisor, but most UK franchises will fall somewhere in this range.
One the whole, this is a fixed sum that will be the same for each new franchisee signing on to the same franchisor.
What Does a Franchise Fee Cover?
This fee is not about generating profit for the franchisor but is instead intended to provide all the resources and support new franchisees need to become part of the franchise and get set up for success.
A franchise fee will typically give franchisees access to:
- The brand’s name and identify
- Logos and brand imagery
- Operational systems
- Products and supplier information
- Marketing materials
- Support and training
Franchise Fee Vs Royalty Fee
The franchise fee is what gives you access to the initial resources needed to join a franchise, but there are also ongoing costs, such as royalty payments, that must be considered.
If the initial franchise fee buys your membership to the franchise, then royalty fees function as a kind of subscription payment, allowing you to continue operating under the franchisor's name and trademarks as well as benefiting from franchise-wide marketing efforts and ongoing support.
Unlike the franchise fee, royalty fees are a recurrent payment that you must pay each week or month, depending on the franchise agreement’s terms. The exact amount paid will be different for each franchise, as it is typically calculated as a percentage of gross sales – usually set at around 5-10%, again depending on the franchise.
Franchise fee: A one-time fixed payment paid when you sign the franchise agreement.
Royalty fee: A recurring payment calculated as a percentage of gross sales paid either weekly or monthly.
Are Franchise Fees Tax Deductible?
One common question around the franchise fee is whether it’s deductible. The initial franchise fee is generally not tax-deductible regardless of whether it is paid in one sum or several installments. It is considered a capital expense as the fee is used to acquire an intangible asset.
On the other hand, ongoing royalty fees can be deductible as business expenses.
How Much is the Esquires Franchise Fee?
The franchise fee for one of our single store Esquires coffee franchises is £19,500. This fee allows franchisees to operate under the Esquires name, branding and systems, essential for getting your store off the ground.
You can find out more about our franchise costs breakdown below.
Franchising is an enticing prospect for entrepreneurs interested in business ownership and a quicker path to profitability, but understanding the costs involved, such as the franchise fee, before you commit is essential.
