How can you ensure franchise fees are being used effectively?

1 Understand the breakdown

Franchise fees and royalties are not the same thing. Franchise fees are the one-time payments you make to join a franchise system and use its brand name, trademarks, and business model. Royalties are the ongoing payments you make to the franchisor based on a percentage of your sales or a fixed amount. Both fees and royalties are meant to cover the costs of providing you with support, training, marketing, and innovation. However, the exact breakdown of how much goes to each service may vary depending on the franchise agreement. Therefore, it is important to understand how your fees and royalties are allocated and what you can expect in return.

2 Evaluate the support

Being a franchisee can offer access to the support and resources of the franchisor, such as technical assistance, operational guidance, quality control, legal compliance, and dispute resolution. However, not all franchisors provide the same level or quality of support. It is important to evaluate the support you receive from your franchisor in comparison to the fees and royalties you pay. To do this, ask yourself questions like: how often do you communicate with your franchisor and how easy is it to reach them? Are you satisfied with the training and coaching you receive? How useful are the tools and systems provided by your franchisor? How well does your franchisor handle any issues or problems that arise in your business? And how much feedback and input do you get from your franchisor on your performance and improvement?

3 Assess the marketing

As a franchisee, you can leverage the marketing power of the franchise brand, such as national or regional advertising campaigns, online presence, social media, loyalty programs, and promotions. However, not all franchisors invest the same amount or effort in marketing their brand and products. Thus, it is important to assess the marketing you receive from your franchisor and compare it with the fees and royalties you pay. To do this, ask yourself questions such as: how much exposure and awareness does your franchisor generate for your brand and products? Are the marketing messages and materials relevant and appealing to your target customers? How well does your franchisor track and measure the results of their marketing campaigns? Are you given flexibility and autonomy to tailor your marketing to your local market? What level of collaboration and input do you have in your franchisor's marketing plans and decisions?

4 Review the innovation

Being a franchisee can bring many benefits, one of which is access to the innovation and development of the franchise system. This can include new products, services, technologies, processes, and best practices. However, not all franchisors are equally innovative and adaptable to changing customer demands and market conditions. Therefore, it is important to review the innovation you receive from your franchisor and compare it with the fees and royalties you pay. Ask yourself questions such as: how often does your franchisor introduce new offerings? How relevant and competitive are they? How well does your franchisor test and validate them before launching? How easy and cost-effective is it for you to implement them in your business? And how much feedback and input do you have in the innovation process? By understanding the breakdown, evaluating the support, assessing the marketing, and reviewing the innovation of your franchise fees and royalties, you can ensure that you are getting the most value out of your franchise relationship. You can also identify any gaps or areas of improvement that you can discuss with your franchisor or seek from other sources. Ultimately, paying franchise fees and royalties is not just a cost, but an investment in your business success.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?