Many Franchisors fail because they expect to immediately profit by charging high initial franchise fees, high royalty fees or high advertisement fees. However, if you look at the Philippine Franchise market, you will find quite plenty affordable Franchise systems. Your Franchise Consultant will assist you in formulating the right Franchise Fee and Royalty structure. You have to be also sensitive with your fees to be competitive with other Franchisors in the same industry so you won’t overprice yourself or short-change your Company.
The Franchise Fee is primarily to compensate the Franchisor for the use of its trademark as well as to defray cost incurred in setting up a system to sell and market franchises. It includes also usually the initial training and the opening assistance provided by Franchisor. Franchise Fees are always collected upon signing of the Franchise Agreement. Usually the first Franchise is sold at a certain discounted rate. To pay the Initial Franchise Fee in installment is not common; however, if a Franchisor accommodates a request, don’t expect a long-term payment program, maximum until the outlet is ready to open. Today we start the Franchise Relationship usually with a Memorandum of Agreement as Pre-Contract and Franchisor charges an Administration Fee, specially if Franchised Facility will be located in a Shopping Mall.
The royalty Fee, as the name indicates, is the royalty payable to the Franchisor on a regular basis for securing rights of franchising. Royalties are usually a percentage of the gross sales (= collected money less VAT) and to be paid monthly within 5 days for the previous month.
Common charged Royalties
Retail Franchises: NONE if all merchandise comes from the Franchisor
Drug Store and Bakeshop have the lowest royalties from 0 – 4% of gross sales
Food Franchises and Restaurants from 3–10% with most common rates of 4–5 %.
Education Franchises have 6 to 40 % of gross tuition and they have to provide in exchange a new curriculum every year and renewals of the Franchise Agreement without any fees.
Many service franchises such as salons and spas work with a Continuation Fee instead of a Royalty and charge a fixed monthly amount instead of a percentage of royalty, which is now commonly used also by Food Cart Franchises.
A renewal fee is charged for the renewal of the Franchise contract and is usually 25 to 50 percent based on the current franchise fee.
This fee is charged by the Franchisor when a transfer of ownership is desired by the Franchisee. This transfer requires prior approval by the Franchisor. The transfer fee is paid by the new Franchisee or voluntarily by the outgoing Franchisee. It can be as high as 50% of the original Franchise Fee paid or is a fix amount prescribed by Franchisor in the Franchise Agreement. This Fee is for the administrative change, the legal requirements and training needs of the incoming Franchisee.
GRAND OPENING MARKETING
Upon Opening Franchisee shall spend for the initial awareness of outlet, which is spent by Franchisee directly
LOCAL STORE MARKETING
1%-2% of gross sales, spent by Franchisee directly to promote the business in the territory of Franchisee
Joint advertisement in yellow pages or billboards among a group of Franchisees
NATIONAL ADVERTISEMENT FUND
TV, Radio and Broadsheet ads. Administered by Franchisor and all outlets, Company owned or Franchised, have to pay into the pot.