How much does a Franchise Cost?

Although investing in a franchise can be more cost-effective for entrepreneurs than starting a business from scratch, there are still significant costs for the franchisee to bear. Here, we’ve taken a closer look at this and answered common questions in this business area like ‘how much does a franchise cost?’.

Franchise start up costs

The cost of setting up a franchise varies enormously depending on the nature of the business but can begin from as little as £500. The start up cost for a home-based franchise, for example, will be much cheaper than for one that requires premises, specialist equipment and furniture.

Before they commence trading, a franchisee must pay a one-off, up-front franchise fee to the franchisor. Typically between five and ten percent of the total investment, the franchise fee pays for the right to use the franchisor's brand name, logo and business plan. It also usually covers training, support and marketing.

Ongoing costs

An ongoing fee will almost certainly be payable too, such as a management or royalty fee to continue trading under the franchisor's brand. This will either be a fixed monthly fee or a percentage of either the franchisee's profits or sales revenue. The franchisee may also be expected to make regular contributions for ongoing promotion and marketing activity and, if they are required to sell the franchisor's products, they will also need to buy inventory.

Franchisees will also need enough working capital to pay suppliers, staff, rent, insurance and utilities - as well as their own cost of living - in the interim before their business becomes profitable. The franchisor should be able to advise how much additional capital will be required, although this will again vary depending on the nature of the franchise.