馃攳
Franchise Fees and Franchise Royalties: What Do They Pay For? - YouTube
Channel: The Daly Coach
[0]
why are there so many fees
[4]
that's one of the most common questions
[6]
that i hear from candidates in 19 years
[8]
of franchise consulting let's take a few
[11]
minutes and talk about why franchisors
[14]
have so many fees
[17]
[Music]
[30]
so why are there so many fees or the
[34]
question should be
[35]
are there really so many fees let's get
[38]
into that topic right now let me define
[41]
some of the most common fees that
[43]
franchisors have the first one of course
[46]
being the franchise fee this is a
[48]
one-time fee that you give to the
[50]
franchisor on the day that you sign your
[52]
franchise agreement when you've
[54]
completed your due diligence you've been
[56]
approved for the opportunity and you've
[58]
said yes you execute your franchise
[60]
agreement and you pay the franchise fee
[63]
if you are investing in more than one
[65]
territory or for the right to build
[67]
multiple stores over time then you will
[70]
pay for all of the franchises that
[72]
you're committed to
[74]
up front of course you won't be expected
[76]
to open them all at one time you would
[78]
be given a development agreement on when
[80]
those additional territories or
[82]
locations would have to be open but back
[85]
to the franchise fee so what is this fee
[88]
certainly if you were an entrepreneur
[90]
you wouldn't have this fee so the
[92]
franchise fee
[94]
i call it the cost of entry it opens the
[97]
gate to disneyland and buys you access
[100]
instant access to this ready-made
[103]
toolbox and that fee really is the
[105]
difference between an entrepreneur going
[107]
out and spending three to five years
[110]
figuring out how to make money and
[112]
hopefully not running out of money while
[115]
they're trying to figure out how to make
[116]
money
[118]
and a franchise owner paying that
[120]
franchise fee getting that ready-made
[122]
toolbox and then hitting the ground
[123]
running from day one that is the
[126]
difference so that is the value of a
[128]
franchise fee now the other big fee in a
[131]
franchise is the royalty now how dare
[135]
those franchisors charge money every
[137]
month and take six percent of my gross
[139]
sales right this is the kind of
[141]
questions i get from candidates like how
[143]
dare they you know
[145]
i understand that if you are comparing
[147]
starting a franchise business to
[149]
starting a business on your own or even
[152]
buying a private business for sale a
[154]
business on your own or a mom-and-pop
[157]
business does not have that ongoing
[159]
commitment back to the franchisor but
[162]
what a business a startup business or a
[164]
mom-and-pop that you're buying also
[166]
doesn't have is the training the support
[168]
the proven marketing and the ongoing
[171]
relationship with a brand right so when
[173]
you're paying a royalty which is a
[175]
percentage of your gross sales that
[178]
you're giving back to the franchisor
[180]
every month and by the way the national
[182]
average on a royalty is between six and
[185]
ten percent of gross sales as i said
[188]
typically collected on a monthly basis
[190]
but when you're paying that money back
[192]
to the franchisor
[194]
the franchisor needs to make money if we
[198]
want our franchisors to be there to keep
[200]
growing the brand to keep looking for
[202]
new opportunity to be staying ahead of
[205]
the competition to be adapting and
[207]
changing to pandemics
[210]
we have to have a profitable franchisor
[213]
partner well how does the franchisor
[215]
make money if not from its franchisees
[218]
so we cannot begrudge the franchisor the
[221]
opportunity to make money off of us
[223]
they make money because we make money
[227]
i know that some people feel like yeah
[229]
but even if i'm not making money i still
[231]
have to pay them well how is that fair
[234]
well it's fair because with all due
[236]
respect this isn't all about you
[239]
no just kidding it's fair because
[242]
they know that their plan works
[245]
if there's a whole system of franchisees
[248]
making money and you're one of the
[250]
you're the only one or one of the only
[251]
ones not making money how is that their
[254]
fault
[255]
so when you said yes to a franchise
[258]
business you said yes to owning it
[261]
and everybody wants to own it when it's
[263]
successful but very few people want to
[266]
own it when it's not they want to blame
[267]
the franchise war but is that really
[269]
fair
[270]
you are the number one factor in your
[274]
success in your business
[276]
so if their plan works and it's working
[279]
for other franchise owners and you're
[281]
not achieving the success that you want
[284]
then it's up to you to figure out how to
[287]
turn your ship around it's up to you to
[290]
go out and reach out to those other top
[291]
performing franchisees to figure out
[293]
what they're doing that you may not be
[295]
doing
[296]
to make your business more successful
[298]
you can't begrudge the franchisor the
[300]
opportunity to be making money off of
[302]
you and anyway when people ask me you
[305]
know how is it fair that i have to pay
[306]
that franchisor even when i'm not making
[308]
money they're actually referring to one
[311]
of the clauses in the franchise
[312]
disclosure document that says that you
[315]
know even if you're not making money you
[316]
still owe us x percent of gross sales or
[319]
a minimum of
[321]
well minimum performance standards are
[323]
not in there to screw you over when
[327]
you're you know when you're talking to
[329]
the franchisor and working with the
[330]
franchisor and doing all that you can to
[332]
make your business work
[334]
a minimum performance standard is in a
[337]
franchise disclosure document because
[339]
sometimes believe it or not
[342]
people sign franchise agreements
[344]
and then they go awol
[346]
what do you mean people sign a franchise
[348]
agreement and then they don't show up
[349]
and open their business that's exactly
[351]
what i mean and ultimately the
[353]
franchisor needs control over every
[357]
territory i mean look they're not making
[359]
any money if the guy that bought it
[361]
never opened the business or did
[362]
anything with it so if their business
[365]
plan requires you know them to be making
[368]
a certain amount of money per territory
[370]
that they're awarding then they
[372]
ultimately need to have control over
[375]
that territory
[376]
so when you're reading an fdd and you
[378]
come across a statement like that don't
[381]
jump to conclusions that this is so
[383]
unfair like take the question into the
[386]
process come to somebody like the daily
[388]
coach take it to the franchisor that
[390]
you're talking to
[392]
and ask them why is this clause in there
[395]
have you ever enforced it and what do
[397]
you mean by it
[398]
ultimately what you're going to find is
[400]
that franchisors are your business
[404]
partner
[405]
they turned their business into a
[407]
franchise yes to use other people's
[409]
money to build their brand but the right
[411]
franchisors are not just in it for your
[414]
royalty dollar those are the ones that
[416]
fail the right franchisors are in it for
[420]
your success
[421]
they're making money because you're
[424]
making money not the other way around
[426]
that's a very important thing to always
[429]
remember and when you're doing your due
[431]
diligence it's really important that
[433]
you're exploring multiple franchisors so
[436]
that you can get a sense of who they are
[439]
and how much they really care about
[440]
their franchisees so that when you say
[443]
yes you don't have this jaded attitude
[446]
that you're just giving them six percent
[448]
of your gross sales and they're not
[449]
doing anything for it
[452]
all right but ultimately their job is to
[455]
grow the brand your job is to be that
[457]
great brand ambassador bringing that
[460]
brand back to your hometown and making
[462]
something of it their job is to have a
[464]
more global view watching the
[466]
competition watching the market bringing
[468]
in new adaptations to keep your business
[471]
growing and thriving as the market as
[473]
the economy as the world changes and
[476]
ultimately that's the value of paying a
[478]
royalty right that you're in business
[480]
for yourself but not by yourself does
[484]
that make sense now other fees that
[486]
franchises may have could be a marketing
[489]
fee now it's kind of funny that people
[492]
say how do they why do they charge so
[493]
much money to advertise this business
[495]
you know oftentimes people think that
[498]
in giving that
[499]
franchise fee like that's what they're
[501]
paying for and i'm like wait a minute
[504]
owning a business is about finding
[506]
customers so if the franchisor could
[509]
find your customers for you
[512]
well why would they need you they want
[514]
to be selling a franchise so it's always
[517]
your job as the business owner to be the
[519]
one
[520]
marketing to get your phone to ring now
[523]
some franchisors will take your
[526]
advertising dollars from you and spend
[528]
them for you some franchisors even have
[531]
national call centers so they'll get
[533]
your phone to ring and then they'll
[535]
answer your phone but other franchisors
[537]
don't do that they just say here's our
[539]
marketing plan here's how much money we
[541]
suggest you spend and here's where we we
[543]
suggest that you spend the money and
[545]
then you get to go out and refine that
[546]
marketing plan in your area so if they
[549]
have marketing
[551]
that they do for you and a call center
[553]
you'll probably be giving them those
[554]
marketing dollars and then maybe you're
[556]
paying per lead right that they generate
[558]
for you you know some of those
[560]
franchisors even take the customer's
[562]
credit card
[563]
right and so they can get the phone to
[565]
ring they can answer the phone and they
[567]
can take the customer's credit card and
[569]
that leaves you the simple operation of
[571]
then sending you know the technician out
[574]
to the home or delivering on what was
[576]
sold through that call center that could
[578]
be a really really simple operation
[580]
any fee that you are questioning in a
[583]
franchise
[584]
should be taken directly to the
[586]
franchisor
[588]
to really understand what that fee is
[591]
covering
[592]
and then to stop and consider
[594]
if i didn't own this franchise would i
[597]
have this fee what i wanted to say
[599]
before was it's sort of funny that
[601]
people start questioning marketing fees
[603]
because look
[605]
90
[606]
of startup businesses fail that is not a
[609]
statistic that's owned in franchising
[610]
that is the pure mom and pop
[613]
entrepreneurial route that everybody
[615]
thinks is so great so if you go out and
[617]
you start a business on your own you
[619]
have a 90 chance of failing before your
[621]
fifth anniversary not to be debbie
[624]
downer
[625]
but that's a fact you can look it up so
[628]
the reason that 90 of those businesses
[631]
fail they fail because they can't figure
[634]
out how to make money which aka means
[636]
they can't figure out how to get enough
[637]
customers typically that's what it means
[640]
so if an entrepreneurial business is
[642]
failing because they can't figure out
[643]
how to get enough customers and then
[645]
over here in the franchise they're
[647]
telling you this is how much money it's
[649]
gonna cost in order for you to build a
[652]
positively cash flowing business how can
[654]
we then question the franchisor or say
[658]
oh how do these franchisors get off
[660]
charging all this money to start a
[662]
business they're not charging it it's
[664]
what it actually costs to build the
[667]
business are you getting it the
[669]
entrepreneurs are failing because
[671]
they're dreamers and i'm not saying
[673]
anything bad we need entrepreneurs
[676]
if we didn't have entrepreneurs we would
[677]
never have franchises right because all
[679]
franchises started out as an
[681]
entrepreneurial venture
[682]
so but in that process of trial and
[685]
error these people are running out of
[686]
money so over here in the franchise
[688]
world it's safer because they have a
[692]
proven plan and the proven plan includes
[694]
things like marketing that is essential
[697]
to most businesses to get the phone to
[700]
ring or to get those customers walking
[703]
through the door
[704]
have i made myself clear
[707]
any other fee that you're tripping over
[710]
or questioning
[712]
absolutely take it to the franchisor
[714]
that you are engaged with and more
[717]
importantly take the questions out to
[719]
the franchisees the people who are
[721]
already paying those fees they have the
[724]
answers that you really want to hear if
[727]
they're happy despite paying all the
[729]
fees they're still making millions of
[731]
dollars and knowing what they know now
[733]
they would do it again
[735]
then i'm pretty sure that if you say yes
[738]
you're probably gonna feel exactly like
[740]
they do
[741]
the last point i'm gonna make about the
[743]
fees that you pay specifically regarding
[745]
the royalty
[747]
so when people really go hardcore on me
[749]
and they're questioning the value of an
[751]
eight percent royalty let me first step
[753]
back and explain this you know a lot of
[755]
times people feel like a lower royalty
[758]
is a better deal for them and i'm like
[759]
really let's think about what you're
[761]
saying so if you were the franchisor and
[764]
you know that the national average is
[765]
six to ten percent would you only take
[768]
six percent yeah i don't think so
[770]
franchisors are gonna take the maximum
[773]
that they can take right you would do
[775]
the same thing so don't judge
[777]
so when you see a low royalty
[780]
what does that actually mean well i
[782]
think it could mean a couple of things
[783]
number one it could mean that there's no
[785]
margin in the business so if they take
[787]
more they're not going to be leaving you
[789]
enough to make it a legit return right
[791]
the other thing that a low royalty a
[794]
flat royalty or even a system that has
[797]
no royalty sometimes you see that
[799]
advertised no royalty no royalty as if
[802]
it's a better deal well what that
[804]
actually means probably is that the
[806]
franchisor makes money off of you some
[808]
other way so if the franchisor is the
[811]
manufacturer of a product that when you
[813]
buy the product they're making money
[815]
they may not need a royalty because
[817]
they're making their money from product
[818]
sales
[819]
if the franchisor is tied into vendors
[822]
and they're getting kickbacks from the
[824]
vendors they may have a low royalty
[827]
or again no royalty but how the
[830]
franchisor makes money from the royalty
[832]
should always be discussed now when you
[834]
see a 9 or a 10 royalty you are not
[838]
getting ripped off
[840]
what that screams and i say this to all
[842]
of my candidates is that's the deal that
[844]
you want all day long because a 9 or a
[848]
10 royalty means
[851]
low fixed cost low fixed cost means okay
[855]
so if nobody's coming in i'm not
[858]
bleeding to keep my doors open trust me
[860]
that is absolutely what kept franchisees
[863]
alive in 2020 but in all times that's
[867]
what you want because when i talk to
[868]
owners that are losing sleep over their
[871]
business or stressed out about their
[873]
business it's always around those costs
[876]
that they can't control so when you see
[879]
a big royalty i say it's the deal that
[882]
you want all day long because it means
[885]
low fixed cost or here's another way to
[888]
say it big fat healthy margin
[893]
for more information on the fees that
[896]
you pay to franchisors or if you're
[898]
questioning any of these fees and want
[900]
more clarification beyond what you can
[902]
get by interviewing the franchisees in a
[905]
system please leave a comment below or
[907]
reach directly out to the daily coach if
[910]
you've enjoyed this video and would like
[912]
to see more don't forget to like and
[915]
subscribe
[917]
[Music]
[931]
you
Most Recent Videos:
You can go back to the homepage right here: Homepage