This blog previously discussed the common ways a franchisor makes money. As we noted, almost all franchisors charge the following fees:
We also began discussing less-common ways a franchisor makes money. These were:
A fourth way is charging fees for services the franchisor provides to the franchisee. Franchisors usually provide franchisees with services that both parties consider “covered” by the royalty the franchisor charges. The franchisor usually provides these services in a group setting; e.g., at a convention, at a regional meeting, or electronically. All franchisees (or all franchisees in a given region, or all franchisees with a given level of experience) are usually given the opportunity to participate. The services usually include group assistance in different aspects of operating a franchise: for example, planning, marketing, managing, and new products or services the franchisor intends to introduce into the marketplace.
A franchisor may be well within its rights to charge for other services it provides. These services are usually provided on an individual basis or to new franchisees as a small group. Primary among these is charging a training fee. Although many franchisors include initial training to be covered by the initial franchise fee, that is not necessarily the best way to charge training fees. If training fees are included in the initial franchise fee, the franchisee will usually amortize the fees. However, if the franchisor charges a separate training fee, the franchisee may usually expense the fee.
Other services usually include specialized training in matters like staffing, generating leads and referrals, optimizing and organizing computerized resources, conducting specialized marketing campaigns, and controlling operation of the franchised business.
If the franchise system is large, the franchisor may want to:
Forming a separate company allows the franchisor to:
We previously mentioned forming a Supply Company to sell products and services to franchisees. As in the case of the Supply Company, there is no cap on the markup the Franchisee Operations Company may charge for providing services. However: