Good day Jamie, Your questions are good and your observations correct. It does appear many franchisors base fees on what everyone else charges. Over the years I have seen many “formulas” used in an attempt to find the “easy button” and personally I believe it does not exist. The old fashioned way of hard work and common sense are much more accurate and will serve most franchisors well if you use real numbers and accurate benchmarks. 10 -15 years ago, franchise fees did not usually include commissions for brokers for example. In addition many franchisors built internal infrastructure for initial and ongoing training and support and did not use outsource services as much. Although each franchisor has unique situations, many of the basics are the same and knowing your real numbers will go along way to helping you find the “right solution” for you. First it is crucial to know what your “critical mass” is. Critical mass is the number of franchise units required who are paying enough royalties to cover the cost of the franchisors support and ongoing infrastructure expenses and not be dependent on initial fees for the system to survive. You should put together several models based on different growth plateaus you achieve. This is why less than 10% of franchisors hit 500 units or more. The additional costs and revenue needed to “get to the next level”, not to mention the commitment and passion often prove more than franchisors, or more often the founders want to commit verses the additional ROI possible. The franchise fee should be used to launch and grow the number of units and the brand to reach this critical mass. Knowing the real cost of franchisee recruitment is absolutely critical to putting together a growth strategy. If for example you want to add 10 Raising Cane’s in 2008 and it costs you $6000 - $10,000 to bring on a new franchisee (internet lead generation, trade shows, brochures, Discovery Days, initial training and related staff etc) not including commissions then you need to budget $60,000 - $80,0000 for franchisee recruitment advertising alone. Then you can add in commissions and the dollar amount needed in what is call “contribution to overhead”. This is money needed to cover the revenue gap and the time line between bringing on franchisees and the point where royalties take care of support, ongoing training and the desired ROI. I would be happy to discuss these in more detail and direct you to some possible sources which you may find helpful. Best wishes and much success you and Raising Cane’s. Chris Simnick
Succeed again in 2010! Christopher Simnick, CFE Managing Member - Synergy Franchise Group, LLC Synergy Franchise Group Network West Palm Beach, FL Cell: 561.385.3032 Office: 561.629.8121 chris@sfgnow.com www.sfgnow.com “Furthering Franchising Through Education & Communication ™ “
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