What does the franchise fee cover?

The franchise fee is typically the amount that a franchisor will charge to recover its initial costs in appointing the franchisee. It is, however, important that the franchise fee is not used by a franchisor as an opportunity to make pure profit, but should relate to actual goods or services provided.  A prudent franchisee should always ask what it will receive in return for the franchise fee and should ask for this to be confirmed in writing before any payment is made. The franchise fee may include the franchisor’s costs of recruiting and training the franchisee, supplying equipment that is used in the operation of the franchise and fit out costs (where appropriate), help and guidance on selecting or approval of premises, demographic information, site visits and any launch initiative that might take place.  It is also sensible for a franchisee to clarify with the franchisor if and in what circumstances all or any part of the franchise fee will be refunded. It is common in such circumstances that the franchise fee, less the franchisor’s reasonable management time and costs incurred in recruiting and training the particular franchisee, will be returned.