Common Franchise Fees: What to Expect as a New Franchisee

Business ownership often comes with a hefty price tag. The hope is that in the end, after initial start-up fees, you get on your feet and start turning a profit. Though any sort of entrepreneurship calls for dedication, franchising frequently offers a much clearer blueprint to reach that profitability. If you are interested in owning a franchise, you are paying to be part of a brand with a proven business model.

Nonetheless, it is wise to research all the costs involved in your franchise investment, so you know what to expect as a new franchisee. Let’s break down the most common franchise fees you’ll encounter.

The Common Franchise Fees

Franchise costs have been carefully calculated to be cost-effective for the investor, yet profitable for the franchisor. It is rare to negotiate these set prices.

One of the first debits you will encounter is the initial franchise fee. Simply stated, this is the one-time cost you pay to be a franchisee, which gives you the right to use the company’s brand. Typically, you pay this fee up front. The price tag for initial franchise fees can range from $10,000 to as high as $100,000 depending on the brand.

Here at AAMCO, there is just a $39,500 franchise fee to join one of the largest franchisors in the auto repair industry. You will also be part of the Icahn Automotive Group which owns four distinct brands and more than 2,000 locations across the country. We have been around for more than 50 years, building a highly respected and reputable position in the automotive aftercare industry.

Start-Up Costs

Transparency is important to us, because we want potential AAMCO franchisees to be fully prepared when they open their business. While the cost to open an AAMCO Center varies, the total investment range is $223,600 to $330,500. This figure includes the $39,500 franchise fee, as well as the costs for equipment, training, and working capital. The real estate costs will vary significantly depending on whether you decide to lease, rent, or buy your property.

All franchises should provide a break-down of these cost and financial obligations. For example, at AAMCO we want to make sure you are financially sound going into this venture. To qualify to open an AAMCO, candidates need a minimum of $65,000 in liquid capital and a net worth of at least $250,000. These qualifications ensure that new franchisees can handle the investment it takes to operate an AAMCO Center in alignment with the business model.

Royalties and Other Ongoing Costs

Another common franchise financial term is royalty. Typically, the amount is a percentage of the franchisees gross sales. Franchisors may decide to make this a fixed monthly fee. Franchise royalties are usually collected by your franchisor on a monthly basis.

AAMCO charges royalties of 7.5% of total gross annual sales. The pay-off is extensive support, along with the buying power it offers as a national brand, keeping your inventory costs low. AAMCO is well known for the intensive coaching and training that we provide our AAMCO franchise owners.

It is not uncommon for some franchises to include a marketing fee. This fee provides national advertising campaigns that may also have a regional or local spin to be used in distinctive markets. Brand advertising is essential to the success of the franchise. The price may be a monthly line-item expenditure or a percentage of revenue, which industry analysts say should be in the one to four percent range.

Some franchisors require purchase of products or services from specific vendors because the franchisor has arranged discounted bulk pricing to all franchise locations. For your research, comparison shop to ensure costs are competitive.

These are all the standard fees you will find in franchising. If a franchisor is quoting other significant costs, don’t get taken advantage of, always ask questions.

Check the Numbers

Once you have decided to take a deeper dive learning about a particular franchise make sure you clearly understand the FDD or Franchise Disclosure Document. This is a legal document outlining the relationship between franchisor and franchisee, including the financials you can expect. It will describe in detail all the common franchise fees we previously discussed, as well as expectations for your return on that investment.

If you are interested in making that franchise investment with a proven brand name that has nearly 600 centers across North America, AAMCO is actively seeking single- and multi-unit operators who are passionate about business and committed to providing the highest-quality service.

Request info today to learn more about AAMCO franchising opportunities.

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