Reading time: 3 minutes

When you’re looking to expand your business via a franchise system, you should consider what you will charge your franchisees exactly. It is, after all, likely to be one of the first questions a prospective franchisee will ask.

Set out below is a checklist of the typical types of fees franchisor’s charge to get you thinking about preparing your franchise. Note, here, we are talking about ‘fees’ in the context of money the franchisee pays to the franchisor, as opposed to ongoing operational fees payable to third parties.

  1. Initial fee: This is the large up-front payment for, in essence, the privilege of becoming a franchisee;
  2. Documentation fee: This is money you pay to have the franchisor’s lawyer draft the franchise documents;
  3. Supervision fee: Commonly, this is payable in retail franchises, for franchisor to provide the supervision of the fit out to ensure that fit out meets the brand’s needs and requirements;
  4. Ongoing franchise fee/royalty: This is the ongoing fee payable, usually, weekly or monthly. It can be expressed as a flat fee or percentage of turnover;
  5. Marketing fee: This is money you pay to the franchisor’s marketing fund, and applied by the franchisor to marketing activities for the benefit of the franchise network generally;
  6. Training fee: It shouldn’t be too hard to guess what this one is for. One consideration, however, is whether that training will just be up-front, or ongoing (i.e. annual) or in the event of a particular happening (i.e. appointment of a new manager to the franchised business);
  7. Renewal fee: Most franchises are expressed to be for an initial term and a ‘renewal term’, which the franchisee can elect to take up (subject to certain conditions, of course). Usually, but not always, the renewal fee is a flat amount.
  8. Transfer fee: In the event a franchisee wishes to transfer or sell their franchised business, the franchisor is entitled to charge for the privilege of investigating and approving that transaction. This can either be expressed to be a flat rate, or proportion of the sale price.

There is no ‘set’ list of franchise fees, and you are only limited by your imagination (and the franchisee’s wallets) in deciding what to charge. Some other, less common, fees include:

  • Audit fees, where the franchisor charges to audit the financial accounts (mostly to ensure correct reporting);
  • Technology fees, where the franchisor creates and licenses its operational software; and
  • Referral fees, where the franchisor establishes a centralised referral system, such as a 1300 number.

All in all, these franchise fees usually add up to quite a pretty penny, and clearly each serves its purpose and should be considered by any prospective franchisor. Importantly, these fees should be incorporated into the franchise documents and the subject of proper disclosure in the disclosure document. A franchise lawyer should, at least at the first instance, draft your disclosure documents to ensure proper incorporation.

Key Takeaways

If you’re a business owner looking to franchise your business, you should talk to an experienced franchise lawyer about these fees, and how to incorporate them into the required franchise documents. Call LegalVision about setting up a franchise on 1300 544 755 or fill out the form on this page.

Webinars

Legal 101 for SaaS Companies

Thursday 22 July | 11:00 - 11:45am

Online
Understand the contracts you need for your SaaS business with our free SaaS legal essentials webinar.
Register Now

Construction Contract Essentials

Thursday 12 August | 11:00 - 11:45am

Online
Understand how construction contracts are drafted and how to protect your construction business.
Register Now

Startup 101: Understanding Cap Tables and ESOPs

Thursday 19 August | 11:00 - 11:45am

Online
Cap tables and employee share option plans are essential for fast-growing startups. Learn more with this free webinar.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • 2020 Excellence in Technology & Innovation – Finalist – Australasian Law Awards 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice – Winner – Australasian Lawyer 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards 2021 Law Firm of the Year - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer