The Initial Franchise Fee and Other Fees to Understand
Business ownership comes with a price tag. Whether you’ve decided to start a business from scratch or become a franchisee, there are costs to getting your business operational. With a start-from-scratch business, you will incur very high expenditures compared with franchise ownership, where you pay set fees to the franchisor, and those fees are clearly spelled out — with no surprises.
Typical Franchise Fees
For example, the initial franchise fee is basically the entrance fee to your business. This is a one-time fee paid upfront to your franchisor, accessing the brand's name, proprietary business systems, and training. The initial franchise fee kick-starts your business. This is why franchising is so appealing to entrepreneurs. It allows a quicker ramp-up compared with an independent startup.
The average franchise fee to expect ranges from $10,000 to $80,000 for single-unit franchises. The sweet spot usually hits at about $50,000. Just as an example, if you are considering franchises that have a storefront like a MassageLuXe spa franchise, our franchise fee is $42,500.
After getting started in your business, you will pay additional startup costs for construction, leases, insurance, and equipment — all of those prices are dependent on several factors, like the industry you are in, your location, costs of real estate, and build-out costs. That’s why most franchises provide you with an approximate range. The estimated initial cost to open a MassageLuXe costs $414,700-$768,000. Keep in mind these are costs that every business owner would have to pay for build-out. However, as a sole proprietor, you would not have the assistance of the franchisor, who will often help with third party-lenders and high-volume purchase discounts.
Fees paid in franchising are designed to get you started as a franchisee, plus build the brand to enhance business for all involved. The fees that fund that effort are recurring and are called franchise royalty fees. Franchisors use these fees to cover the costs of ongoing training and support and are designed to keep everyone updated on the latest innovations and technological advances.
Royalties are usually collected by the franchisor to provide support services to franchisees. This is a continual fee with calculations based on a percentage of your gross revenue. Franchise royalties range from 2% of your revenue all the way up to 12%. The average franchise royalty fee usually sits at about 6% of monthly gross income. This fee is usually paid weekly, monthly, or quarterly or may be in the form of a flat monthly royalty fee. Every franchise is different so it’s important to understand these fees, what they will be used for, and when they will be collected.
Most franchises will also have marketing or advertising fees. Again, like royalties, these are generally based on a percentage of your monthly gross revenue and provide an advertising plan integral to your success as a franchisee. You should estimate about 1% to 5% for this cost. Promoting your franchise and the franchise brand itself is key to business growth. Part of the attraction of franchising is that you are able to maximize brand recognition as you grow your location. Leaving the job of marketing to the experts is another benefit of franchising. You leave the market research and new concepts to the franchisor who is dedicated to your success.
There is some additional financial information necessary before you begin your venture. Your franchisor will require you to have a minimum liquidity amount. These standards are in place to ensure that you have enough liquid assets to cover costs that may be needed in the first year of business; until income develops.
There is also a minimum net worth requirement assuring the franchisor that you have the financial stability to take on this investment and that you are a strong candidate.
Franchising With MassageLuXe
Franchising is a strong business and very appealing to entrepreneurs who want to enjoy their dreams of business ownership using a developed system and proven model. Understanding how franchises work before diving in can make the process of opening your business much easier.
At MassageLuXe, we are with you through every step of your business ownership journey. Our model is designed for quick ramp-up, which translates to the opportunity for profit potential, sooner. With the massage industry in high demand due to increasing consumer demand in the wellness industry, all arrows are pointing toward a high possibility of success for you as a franchisee.
In addition to the massage and facial offerings, the MassageLuXe model provides a consistent sales cycle for franchisees thanks to our membership-based recurring revenue and various additional revenue streams increasing income potential.
To learn more about spa franchise opportunities with MassageLuXe, scroll down to fill out the contact form below.