The concept of entry fee is the amount charged to each franchisee by the franchisor at the time of joining the business. It is charged once the contract is signed, although some franchises they also facilitate payment in installments. For some it implies a kind of tax, although the banners insist that it is money that will serve to cover all the costs of its start-up.
Direct costs of the entrance fee
There are some direct costs of the entrance fee such as:
- Proportional cost of the amortization of the investment made in the project.
- Amortization of advertising campaigns made to get new stakeholders.
- Expenses associated with each new franchisee for concepts related to the selection of the establishment.
- Costs derived from the initial training that will be given to the franchisees.
- Expenses for printing operating manuals.
- Market analysis on the competition.
Entrance fee amount
The term entry fee varies depending on the brand and the sector in which it is located, although it usually ranges between 0 and 35.000 euros, although the average is between 12.000 and 15.000 euros. Firms that charge zero have other ways to finance the franchise without the need to apply the canon. On the opposite side are the brands with longer training programs that contribute to the initial phase of the franchisee's business. This is the case, for example, of businesses with complex operations such as hotels and restaurants.
Ways to determine the entrance fee
There are different ways to determine the type of fee. It is a decision of the franchisors based on a series of parameters.
- Most often it is a fixed amount for all franchisees.
- A variable amount that can be determined by the sales of an area or the investment percentage. Higher investment initiatives may require more work, causing the franchisor to rate it proportionally.
- An amount determined by the size of the market or the exclusive zone. For some it is the fairest way, trying to adapt the canon to the potential of the franchise.
We must not confuse the royalty that is paid periodically with the entrance fee that is paid at the beginning of acquiring a franchise.