Hi, I am currently franchising my business and have 2 pilot franchises underway.We are a service based business offering IT Support.
I am currently taking 10% of the gross profit of the franchises, and taking no management or support fee.
I have done a great deal of research and cannot find any formulas or suggestions as to what we should be charging. Perhaps experience should tell you this, but I have never franchised before.
Before I roll out the franchise any further I would like to know if 10% is reasonable. My business advisor suggests we should be charging a monthly support fee, but I dont want to diminish my franchisees chances of success.
Does anyone have any thoughts or suggestions on this?
Hi Eitex
It sounds like you are doing everything the right way, certainly setting up pilot franchises first is the best way forward as this can really help with franchise sales when you can show your franchise is a viable business when transferred to other areas.
On the subject of on-going fee's, these swing wildly from franchisor to franchisor but 10% sounds very fair to me. If you want to expand your brand name by doing marketing campaigns and the like then you need a steady flow of income from your franchisee base for this and of course what they put into the pot they get back in the way of increased exposure in the marketplace.
Saying that though - a block 10% may not be the viable option. Really you aught to be sitting down and doing a spreadsheet showing marketing and support costs over the next 1-4 years and ensuring that you can scale this to the number of existing franchisees (projected or not) that you plan to have.
Once they have signed the contract that is it unless you have small print saying you can change these figures any time, which is never a good thing when read by a lawyer (which some will do) so you really need to nail down these figures before you start signing up any franchisee's. Perhaps splitting it up into a fixed monthly fee, fixed marketing pool and fixed support costs would give you and them a better idea of where their monthly payments to you are going and make sure they know exactly what they are getting in to.
Kind regards,
Matthew Anderson
The Franchise Shop