Why The Franchise Fee Doesn’t Matter
Yes, you read that title correctly. The franchise fee is largely irrelevant, and instead you should be focusing on your overall potential return on investment.
When evaluating franchises, it’s common for people to take note of the franchise fee for a concept, and compare it against other brands – especially if you’re looking at multiple franchises in the same category.
But unless you come across a brand charging exorbitantly high franchise fees, in reality the franchise fee just makes up one small piece of your initial investment that marginally impacts the overall return on investment in your business.
The two much more important metrics to consider are:
- Initial investment range
- Franchisee performance in existing locations
Example: Planet Fitness vs F45 Training
- Franchise Fee: $20,000
- Total Initial Investment: $968,000 – $4,100,000
- Franchise Fee: $50,000
- Total Initial Investment: $313,000 – $485,000
As you can see, Planet Fitness lists a total initial investment range of $968,000 – $4,100,000 per location. Compare this to F45 that lists a far more inexpensive range of $313,000 – $485,000 per location (note that the “total initial investment range” has the franchisee fee built into it as well).
Given that you are investing at a minimum 2x the amount of money, and potentially 8x the amount of money for one Planet Fitness compared to one F45, are you really going to care that Planet Fitness only charges a $20,000 franchise fee compared to F45’s $50,000 franchise fee?
I would hope the answer is no! The franchise fee shouldn’t matter at all in this scenario, as Planet Fitness requires far more capital per location, and further analysis is needed on both brands to judge how long it would be until you can potentailly recoup the initial investment and start profiting.
Thus, the point is that the full investment range, combined with financial performance data from existing franchisees is what dictates your potential return on investment timeline, and that’s all that matters! Comparing somewhat arbitrary franchise fee’s across brands with vastly different investment profiles is not a productive exercise.
Franchises are an investment, and like any investment, your return on invested capital is the top priority from a financial perspective. So don’t sweat the franchise fee of a brand if it’s overall return looks strong.
Franchises With The Same Investment Range
In the case that you do have two brands that cost similar amounts of money to get up and running, figure out which brand has higher performing franchisees. If one brand is cranking out $50,000 more per year in profit dollars per location (after accounting for royalties and any other fees), then it’s certainly worth paying a higher franchise fee for.
Unless you feel that two brands are offering the same exact value in every facet other than franchise fee – then yes, of course pick the brand with the lower franchise fee.
However, 99 out of 100 times this isn’t the case, and there are differentiators between franchises that make one superior to the other, whether it’s the brand reputation, strength of the executive team, ongoing operations support, etc.