What does the Initial Franchise Fee Cover?
There is plenty to consider when determining whether to open a franchise, especially the cost. You may want to weigh the initial franchise fee with the payoff you hope to receive down the road. The initial franchise fee is the upfront cost you pay to join a franchise, but you should plan to pay more than the initial franchise fee to open a franchise.
What is an Initial Franchise Fee?
An initial franchise fee is the cost of entry to join a franchise system. This is usually a one-time flat fee. According to the U.S. Small Business Administration (SBA), today’s franchise fees range from $20,000 to $50,000. The franchise fee doesn’t cover ongoing support; it is the initial investment required to be a part of the franchise system. The amount of this initial investment varies by industry and from franchisor to franchisor.
Normally, the franchisor will set a fee that makes the opportunity marketable to potential franchisees while also enabling the franchisor to pay commissions to its franchise salespeople. The rest of the fee should help give initial support to the franchisee. Traditionally, this fee may also be used by the franchisor to help the owner with site development, training, and initial promotion.
The initial franchise fee to open a MassageLuXe spa is $42,500. The estimated initial cost to open a massage business varies from $449,900 to $564,500. You can get a breakdown of the MassageLuXe startup costs here.
Estimated Initial Costs
There are other costs associated with opening a franchise besides the initial franchise fee. The estimated initial cost will include the initial franchise fee as well as the costs of everything you will need to get your business up and running.
You may need to budget expenses for a grand opening, local promotions and advertising, supplies, rent (if not buying), maintenance, uniforms, salaries, and more. This is where an entrepreneur considering a franchise should keep a keen eye out for possible “hidden” costs. Ask the franchisor to be upfront about the estimated initial costs. It may be helpful to ask other franchisees about their experiences, to see if they line up with what the franchisors expect.
After paying the initial franchise fee and the estimated initial costs, you will need to pay a royalty fee to the franchisor.
A royalty fee is a regular fee, paid weekly or monthly, based on a percentage of gross sales, that the franchisee pays to the franchisor. It is used for ongoing support of current franchisees and to help grow the system.
Some franchise systems charge a fixed or minimum fee, rather than basing the royalty fee on a percentage.
MassageLuXe’s current royalty fee is 6 percent of gross revenue, payable weekly. According to the SBA, franchise royalties typically range from 4 percent of your revenue to 12 percent or more.
Prospective franchisees can find the amount or percentage used to determine the royalty fees, as well as their frequency, in the Franchise Disclosure Document (FDD).
After you submit a preliminary questionnaire, you will have the opportunity to learn about the MassageLuXe business model and our support systems. A franchise development representative will go over the FDD with you and will provide you with additional information on the spa and massage franchise industry, startup costs, investment levels, and financial representation.
To learn more about spa franchise opportunities with MassageLuXe, scroll down to fill out the contact form below.