There are certain specific financial fees which most franchisees will be paying you, or others, when they open a franchise unit. The opening involves many serious financial considerations including start-up costs, franchise fees, and one to three months operating costs. These costs are crucial for both the franchisor and franchisee to understand. In addition to start-up or turnkey costs associated with the development of a business, the franchisee will also be required to pay fees to the franchisor headquarter organization including:

1. franchise fees

2. royalty fees

3. advertising fees

4. training fees (possible)

5. lease fees (possible)

6. other fees (possible)

The initial financial obligation which franchisees must pay franchisors is the initial franchise fee. This fee generally runs from $5,000 to $40,000 and is paid to the franchisor to allow the franchisee to become a franchisee of your particular franchising system. The franchise fee is a one-time obligation which the franchisee assumes when they become a legitimate franchisee. Most franchisors do not make profits off of franchise fees.

RULE OF THUMB: Franchisors generally only charge franchise fees to cover their costs for starting your franchise. 

The royalty fees paid by the franchisee to the franchisor are generally a percent (3-8 percent) of the bi-weekly or monthly revenues of the franchise business. For instance, if the franchisee earned $80,000 during the first month of operation and your royalty fee was 5 percent, then the franchisee would submit $4,000 at the end of the month to the franchisor as payment of the royalty fee.

Most franchisors now include an advertising fee which is paid by the franchisee to the headquarters organization. Franchisors generally keep these funds in a separate account and are not included in a general revenue account of the franchisor. These monies are spent by the franchisor only for the purpose of advertising or marketing the franchising system, products or services. This advertising fee generally runs from 1/2 of a percent to 4 percent of gross revenues. For example, with $80,000 in gross revenues, if the advertising fee was 2 percent, then the franchisee will pay $1,600 to the franchisor advertising fund for that month.

On occasion there are training fees associated with the operation of the franchise. Most of these training fees will be for travel, food and lodging. The actual cost of training is generally assumed by the franchisor. Many franchisors will have regional training programs once or twice a year plus an annual convention which is the major training program for the franchising system.

An additional cost also present in a few franchising organizations consists of lease fees which may be used to pay equipment, fixtures, computers, or even the land and building on which the franchise is located. These lease fees can range from a fixed amount to a percent of gross revenue. The computer lease fee may be $50 a month or the land and building fees may be up to 8 percent of the gross revenues.

There are others fees which the franchisee may need to pay during the lifetime of the business. These fees might include consulting fees, accounting fees, field service fees, or legal fees.  One interesting fee that is generally gladly paid by franchisees occurs when they request other franchisees to come and visit to evaluate and provide support to your own franchise business.