Purchase of goodwill, entry fees, royalties, communication and operating costs: an overview of the expenses involved in buying a franchise.
While chains often clearly announce the overall investment required to join them, it is sometimes difficult to visualize what this amount actually entails.
How much does a franchise cost?
Of course, it’s difficult to give a precise figure for buying a franchise, with sums varying widely from one concept to another: will you need premises? If so, the purchase price of the business will depend on its location and value. Does the concept require the purchase of equipment, a stock of products, employees? The overall investment can therefore range from 5,000 euros to over 500,000 euros, depending on the business.
According to CSA-FFF-Banque Populaire figures, nearly 70% of chains require a total investment of over €100,000: to validate the project, banks generally require a personal contribution equivalent to 30% of the total investment.
To open a franchise, you’ll also need to factor in certain expenses specific to the franchise contract.
Entrance fee
Paid on entry to the network and on renewal of the franchise contract, the entry fee, or initial fixed fee, remunerates the network head in exchange for the right to use its concept and benefit from its know-how and brand awareness.
It’s all the work done upstream, which enables the franchisee to launch with a proven model, that is thus valued. The entry fee may or may not include the cost of training. The average for all concepts is between €15,000 and €20,000.
Royalties
Franchising involves royalties and/or fees to support the brand’s operations and communications. By operations, we mean everything to do with developing and running the network, as well as service and product innovation to maintain its competitiveness.
Communication fees cover not only national brand visibility, but also the design of common tools to ensure consistency across all franchisees at local level. However, not all franchise networks offer the same thing in their communication fees, so it’s important that the franchise contract specifies this.
Royalties can be flat-rate, or calculated as a percentage of the outlet’s sales (essential for assessing the price of a franchise).
Operating expenses
These are the most variable costs, depending on the concept and business sector chosen, and they raise a number of questions: do you need premises to run your business? Do you need a No. 1 location, or is a simple desk enough? What is the property price in the town concerned? What adjustments are needed? What equipment should I invest in? What should be the initial stock? Depending on the contract, how is this stock managed with the retailer? Is it possible to start up without an employee?
From this point of view, the most expensive concepts are restaurant and bakery franchises, while concepts such as in-home computer troubleshooting or used car sales, for example, are much more affordable.
Communication costs
While we’ve already talked about communication fees, which enable franchisees to ensure the brand’s global visibility and the design of consistent communication tools, it’s essential to think carefully about local communication, especially when starting up a business. This expense item is all the more important when you’re starting out with a young network, where everything still needs to be done in terms of brand awareness.
A good initial communication plan (flyers, posters, local press, etc.) requires an average investment of 6,000 euros. This sum is sometimes included in the entrance fee.
Working capital requirements
Working capital requirements (WCR) means thinking about all the expenses you’ll incur even before you start your business and generate sales: in particular, it includes fixed expenses such as rent, electricity and insurance, the first salaries of any employees, and the amount the franchisee needs to live on until he or she earns an income. It is therefore essential not to underestimate it.
