Your Franchise Fees, And What They Buy

If you’ve decided you’d like to build a franchise business under the umbrella of a franchisor such asHome Instead, one of the first things you’ll need to know is the likely costs involved. This is vital, as knowing the franchise fee and other related charges will enable you to assess whether or not this is a viable proposition for you.

The costs involved will include annual or monthly franchise fees as well as a wide range of other charges. These will cover most of the tools and resources that your franchisor should provide so that you’ll have everything you need for your new business to succeed. Typical examples include advertising and marketing fees and training and technology costs.

Once you have a good idea of the full implication of all these charges, you’ll be in a better position to decide how to manage your finances as you move forward.

Setting up your business

There are two key components to the initial charges made by your franchisor when you set up your business: the single franchise fee and the regular royalty fee. You need to ensure that these aren’t too high, so that you have insufficient room left for any reasonable profit. At the same time, the franchisor needs to ensure that the fees are high enough to enable them to provide you with all the support you’ll need as a new franchisee. With Home Instead, we ensure that both of these fees are clearly outlined on our website.

The main franchise fee is the upfront, one-off payment that covers the initial use of the franchisor’s brand (which, in the case of well known organisations, can in itself bring in a large amount of business); their business model (including the policies, regulations and strategies they’ve refined over the years); and the depth of support they’ll provide. Some franchisors also include the initial training and business development as part of this package.

You should also bear in mind that it’s important to have some capital reserves in case you face unexpected costs; you need extra supplies; or you have to support the business in the early days when profits aren’t so high. In the very early stages, you might also need extra money for a consultant or legal advice if you’re unsure about whether to embark on this new venture.

Royalty fees usually involve a regular monthly payment to the franchisor based on a percentage of your revenues or your profits. It’s important to understand which of these approaches is used, as royalties based on revenues can lead to problems with cash flow if you haven’t accounted for these from the start. On the other hand, some franchisors just charge a set monthly fee for royalties. The reason that royalty fees are necessary is that they help to compensate the franchisor for continuing support and other ongoing expenses, such as brand development and system enhancements.

Fees for continuing help and support

Like any other business, there are many different costs associated with running a home care franchise. Services provided or supported by the franchisor – such as training, marketing and technology – will therefore also be covered by different fees. 

In the case of training, like many other franchisors, Home Instead’s upfront franchise fee also covers the initial training and development costs for a new franchisee. This will take into account your specific needs and demographics of your territory. Further training and support will usually attract additional fees on an as-needed basis.

This training will ensure that you make the best use of your employees and resources and can maximise your business opportunities and profits. Typically, it could include refresher courses, meetings, conferences, eLearning sessions, new product training and management development programmes. Many of these events enable franchisees to network, share best practices and exchange ideas.

Advertising and marketing are crucial tools that will help you build your business, both now and in the future. They can form the basis of awareness campaigns at a local, regional and national level. Some franchisors will charge fees for national and regional campaigns, as these will ultimately help to promote the business and brand to the advantage of all franchisees. Having a reputable, trusted and easily recognisable brand makes it much easier to attract new clients and to retain the loyalty of existing clients.

As well as supporting franchisees with marketing tools and resources, Home Instead’s central marketing team also raises awareness at a national level by tackling important issues on TV and radio. Other approaches we use include digital marketing, advertising, press releases and promotional materials. Alongside this, franchisees are given continuous support, including toolkits and webinars. Usually, franchisors charge between 1% and 2% of gross sales. Home Instead doesn’t charge for its national and regional campaigns and its marketing fee for franchisees is calculated on the basis of 2% of monthly gross revenues.

Technology plays an important role in enhancing the efficiency of your franchise, although it should never be used instead of that close personal touch – but rather to make your service to your clients even more effective. Franchisors like Home Instead therefore use technology to streamline and improve relationships with clients and also to monitor them closely for any potential issues that could arise.

Renewal and other fees

Your franchise agreement will usually include details of a renewal fee that becomes payable so that you can extend the agreement after the initial term has been completed. This fee might be based on a percentage of your sales or could be a one-off set fee. It enables you to keep using the franchisor’s brand and services – but please ensure you check any terms and conditions carefully. Different franchisors will use different approaches. For instance, Home Instead’sfranchise agreement covers an initial five-year term, with the right to renew the agreement at the end of this period.

There are various other fees you’ll have to consider, many of which might not be covered by the franchise agreement. These include items involved in setting up the franchise – such as legal, accountancy and taxation advice; lease negotiations; and the cost of your utilities. It’s vital that you take all of these into account when budgeting and planning your finances. As previously mentioned, one particularly important factor is the need to have sufficient working capital available in case of unexpected expenses.

So, as a new franchisee, you’d be well advised to follow the old Boy Scout’s motto of ‘Be Prepared’. If you have carefully assessed all the likely costs and are still happy that you have the funds needed to proceed, you’ll soon find that a good, well-run home care franchise is a very worthwhile investment.

Start your journey now!

It begins by booking a call with our Franchise Development Manager, Luke Spellman. Click here and learn more.