What Does A Franchisor Spend The Initial Franchise Fee On?

Shelley Nadler writes:

Usually, the initial fee covers a range of services provided by the franchisor to help the franchisee establish its business.

This will include training in the franchise system for the franchisee and possibly some of their employees (if relevant) for a specified period of time and advice and assistance on the various elements necessary to start the business. It will also include the provision of the franchise operational manuals.

For a premises-based franchise, initial assistance provided by the franchisor may include the selection of premises and advice on the design, fitting out and equipping of the business.

If the franchise is a mobile operation involving a liveried vehicle, the franchisor should provide assistance with the leasing of a suitable vehicle and the application of the livery.

In some franchise networks, the initial fee includes a package of equipment and/or products comprising all the initial requirements of the franchisee’s business. In some cases it may include the cost of a ‘turnkey’ fitting out of premises, the cost of launch marketing activity or the setting up of a website for the franchisee, plus a supply of marketing materials or templates.

The initial fee also contains an element that’s attributable to the value of joining the franchised network and the strength of the name and goodwill associated with it.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.