Franchise Costs

We may adapt to run the business effectively, we may change our attitude to serve our customers better. However, franchise costs is a totally different game. There is always the aspect of price versus the overall cost. The price determines the initial investment, administrative fees and the setup cost. The franchise costs describe the overall budget to setup and run the operation. Unfortunately, more too often franchises disclose only the initial investments and the fees. The hidden costs of running the business (salaries, outgoings, supplies, etc) are seldom presented to the future franchisees.

Franchise Fees vs. Franchise Costs

Most franchises insist only on the initial investment and administrative fees. They know that once you have invested the money you will try to move heaven and earth to make it work. However, the hard work, intelligence and will may not be enough. Apart from the initial investment you must have the access to more funds. This means that either you have more money in your account or you are able to borrow it in the case of emergencies.

A good example of how much maybe needed to borrow is Hungry Jack. This franchise is pretty upfront about what is involved to run its operations. Hungry Jack requests $1.3 million dollars for an initial investment and the assurence to borrow the equivalent amount from lending institutions. Generally, this is a very good measure of the entire franchise costs. Following the Hungry Jack example, you probably need twice the amount of money of franchise fees to cover franchise costs.

Franchise Costs and Fees of The Selected Businesses

The cheapest to run and invest are mobile agencies. The most successful are mortgage brokers which need a modest investment of +/-$30K. There are hardly any additional fees to run the business. The franchise costs may further be inflated when there is a need to hire an office. However, most franchisees from Smartline and Mortgage Choice can work from home. The car is not optional but there is no requirement to purchase a new vehicle.

Food franchises work differently. Most coffee outlets which also serve cookies, cakes and sandwiches require an initial investment of $300K. The franchise cost to run these businesses can be about $10K per month. This of course depends on the location and the number of employees needed. The more famous players like McDonalds and KFC may also require franchise fees of $300K -$500K.

However, the running franchise costs for these brands are not easy to estimate. The employees are relatively inexpensive but you need a large number of them to efficiently provide the service. Also, the location is a big factor to determine the rent. To rent premises for McDonalds in the city will cost 3 times as much as that for suburban areas. The initial investment cost is also higher for popular locations. As the rule of thumb you should double the initial investment cost to estimate the real franchise cost for fast food outlets. Thus, if the business costs $400K you will need an access to about $800K to prevail. This is exactly the business model of Hungry Jack.

However, the estimated franchise costs of this operator is in the range of $2.6 million ($1.3 million for the initial investment and another for operations). Petrol stations are a big hit within migrant communities. This is especially true for Mediterranean nationalities where small-shop businesses are the way of life. Smaller brands like United ask for only $30K initial investment. Caltex, for a similar deal, demands $200K.

The initial investments do vary widely between petrol station franchises. This does not mean that the cheaper guy is more cost effective. The actual franchise costs to run these operations may, in fact, be the same. For example, United may enforce franchisees to purchase only their products for the re-sell.

Franchise Costs - Ask Franchisees!

The best way to find out about the actual franchise costs is to ask current and former franchisees. Do not just phone them to find out how much they earn. None will give you that information (you would not either). Ask about daily operations, losses and franchisor's regulations.