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How long does it take on average to recoup a franchise fee?
How long it takes to recoup a franchise fee will primarily depend on the amount of the initial franchise fee ““ and the amount is often governed by the type of franchise. For example, the initial fee may be higher if the franchisor is providing equipment that the franchisee will need to operate the franchise. It is usual for the initial fee to contain a very low profit element for the franchisor and should be aimed at the franchisor recouping its costs in granting the franchise to the franchisee. For example, the initial fee will often include a proportion of the franchisor’s costs in setting up the franchise, including franchisee selection, training, professional fees, etc. As a rough guide, the initial fee should be no more than 10 per cent of the total cash requirements of the franchisee in starting up the franchise. If the fee looks excessive, the franchisee should always ask for a breakdown to satisfy itself that the franchisor’s profit element is not too excessive and always ensure that the term of the franchise agreement is long enough to recoup the initial payment and turn a profit.
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