Understand what it is that you are selling:
you are selling the rights to run a replica of your business, using your brand and using your knowledge.
How do I work out what to charge for my franchise?
This is a question I get asked on a regular basis. It’s not as simple as looking at what your competitors are charging and just charge a bit less. You need to be more strategic than that. Do not fall into the trap of thinking you must include everything in the initial franchise fee. It is nice though to give them something tangible to take away with them from the induction training.
Before you even start you need to do your research. Do have a look at what your competitors charge and look at what franchises at the same stage as you in their network growth are charging. Be aware that franchises that are new often have lower prices for their first few franchisees. Which is great as long as there is a plan to increase the price as the brand becomes more established.
Once you have a broad range of prices it’s a good idea to make a list of what your franchisee will get as part of the initial set up and put a price on everything. Remember to include things like training especially if you are buying it in, any software they will need. What about uniforms and any marketing collateral ? The cost of any initial marketing and the cost of the launch of the business are all important factors that need to be taken into account.
Once you’ve done that you need to consider which items you want to include in your starter pack and which items need to be included in the franchisee profit and loss forecast. (P&L)
If any of the items, you have costed make the initial fee too high you can simply remove them from the list and add them as start-up or ongoing costs in the franchisee P&L.
Let’s just go back to my mention of the price being lower for the first few franchisees. If you are going to keep the price low to start with , there are a couple of things to think about.
Firstly, when you reduce the price, wherever possible you need to reduce the cost. If you have costed in your time for the training, this might be something that you can include for free for a short time as it doesn’t necessarily affect your bottom line.
Secondly make sure you know your numbers and you know where you need to increase the price to make the whole thing work properly.
One of the biggest mistakes franchisors make in the early days is to give too much away to incoming franchisees. Putting too much into the initial fee can have a detrimental effect on your business particularly if it’s changing the numbers in your forecasting.
Consider the fact that if the franchise fee is too cheap it’s not going to hurt if the franchisee can’t be bothered and decides to leave. If it’s too much and the banks aren’t lending much against your model yet, it takes potential franchisees out of the running.