Franchise Costs Revealed: See the Breakdown

As you review various franchise opportunities, you may be wondering, “But how does a franchise work?” don’t worry—we’ve got you covered.

To put it simply, a franchise allows you to operate your own business using an established brand, proven processes, and ongoing support. However, this guidance does come at a cost, including an initial franchise fee and ongoing royalty fees. Learn about the line items that influence the cost of opening a franchise and what you need to know before investing.

What’s Included in the Total Franchise Cost?

To get a true understanding of the total cost of starting a franchise, you’ll want to thoroughly review the brand’s franchise disclosure document (FDD). Item 7 of the FDD breaks down all of the estimated investment costs – including the following figures:

• Initial franchise fee: This is a one-time fee, paid upfront by the franchisee when you sign your franchise agreement. The initial franchise fee allows the franchisee the rights to use the franchisor’s brand, trademarks, business model, and operating systems. It also covers initial support from headquarters, including training, site selection, and marketing assistance. This fee is typically non-refundable with the amount varying by brand.
• Startup costs: These are all of the expenses required to launch the franchise. Typically presented as a range, these costs include the initial franchise fee, equipment and inventory purchases, construction expenses, licenses and permits, initial marketing campaigns, and any lease or utility deposits. These costs vary depending on the franchise concept, location, and business model.
• Ongoing franchise royalty fees: Usually a percentage of gross sales, these are regular payments made by the franchisee to the franchisor. Mandated by the franchise agreement, these fees are required in exchange for continued access to the franchisor's brand, support services, marketing strategies, and tech systems.

Are Franchise Costs and Financial Requirements the Same?

In short, no. Financial requirements – a standard industry practice – are different from the costs associated with starting a franchise. Brands set strict qualifications to ensure all potential investors are in the best financial position at the start of their business venture.

Typically, franchisors mandate every candidate meet or exceed a pre-determined net worth and liquid capital threshold. Some brands may also require a certain credit score. To ensure you research franchise opportunities within your financial bandwidth, consult with a financial advisor first. They’ll work with you to help you understand your total net worth and liquidity.

Six Tips to Finding an Affordable Franchise Opportunity

Eager to invest in an affordable franchise? Below are a few tactics to help you find the right opportunity:

1. Consider home-based or mobile franchises: Home-based and mobile businesses don’t require physical storefronts, eliminating the need for purchasing or renting real estate, construction expenses, and utility costs, keeping operational expenditures low.
2. Seek brands with negotiated costs: Established franchise brands often have partnerships with third-party vendors and suppliers, offering their franchise partners negotiated pricing on equipment, inventory, and marketing services.
3. Compare fees and royalties: Evaluate franchise brands with lower franchise fees and royalty percentages. These reduced costs can greatly impact long-term affordability and profitability.
4. Look for incentives and discounts: Many franchisors provide reduced franchise fees, royalty waivers, and other discounts to qualified candidates. Programs like VetFran and MinorityFran offer benefits to military veterans and minority entrepreneurs. Additionally, multi-unit owners often receive discounts on subsequent locations after opening their first franchise.
5. Consult with a franchise specialist: A franchise consultant or advisor can help you identify different investment opportunities that fit your financial profile while aligning with your skills, goals, and interests.
6. Leverage financing options: Some franchise brands offer in-house financing or have established relationships with third-party lenders to help make their opportunity more accessible. There are also other options such as SBA loans, crowdfunding, and even loans from friends and family.

Franchise with Lightspeed Restoration

Lightspeed Restoration is part of the Home Franchise Concepts family, a leading name in the home services franchising industry. Our network of seasoned professionals have over 30 years of expertise, offering you unmatched guidance that positions you for success in the growing restoration market. When you partner with us, we’ve got your back – ensuring you have everything you need to thrive.

To learn more about the franchise opportunities we offer, connect with us today, and a member of our team will be in touch.