Franchise Fees Demystified: What Am I Paying For?

Published On: May 15th, 2023Categories: Floor Coverings International Franchise, Franchise Costs

If you’re hesitant about getting into franchising because of the fees associated with this type of business ownership, understanding the fees and how they benefit you can help put your mind at ease. There are costs in any type of business; franchising costs are just delivered in a more structured way.

How a Business Becomes a Franchise

A franchise comes with a detailed business model that, typically, someone who has little to no experience in a particular industry could learn to operate successfully. To do this, the franchisor has to meet the criteria of the Franchise Rule, as governed by the Federal Trade Commission (FTC).

Part of the Franchise Rule involves creating a franchise disclosure document (FDD) that details the franchise opportunity, including costs and fees. More than 790,000 franchise establishments in the U.S. have followed this intensive qualification process, including Floor Coverings International (FCI).

The Initial Franchise Fee Explained

The initial franchise fee covers the cost to get you up and running, starting with having access to the brand’s business package. With FCI this includes marketing materials, supplier relationships, software, the sales process, and name recognition in the industry.

When you start a business from scratch you find suppliers, negotiate terms and product delivery, invest in a marketing plan, find and test the appropriate software platforms, figure out legal and insurance needs, and so on. The initial franchise fee covers this work being done for you in a reliable and proven way.

Total Investment

The FDD also includes a startup cost range. At FCI, the initial investment is $226,400-$340,100, which includes:

  • $50,000 franchise fee plus territory fees
  • Mobile software and two months of software access
  • Training and opening package
  • Initial advertising including a grand opening
  • Personnel
  • Insurance, vehicle expenses, office equipment, real estate improvements
  • Legal and accounting fees, business license, internet, phone connections, utility hook-ups, etc.
  • Six months of startup funds

If you run the business by yourself, you won’t have personnel costs. If you use your vehicle for your mobile franchise, the costs are lower than purchasing or leasing a vehicle. If you have a home office, you don’t have to pay for real estate improvements, internet and phone connections, utility hook-ups, etc.

Franchise Royalty Fees

You pay royalty fees, usually based on a percentage of gross sales, regularly to the franchisor. With us, the royalty fee is 5% of gross sales and is due monthly.

The royalty fee is used to fund ongoing support to franchisees and furthers any business development initiatives for the franchise. This might include technology improvements, hiring sales consultants, adding product lines, or leadership training. These investments make business better for franchisees.

A strength of franchising is you become part of a network of other franchisees, all of whom contribute collectively to the success of the brand.

Additional Fees

Some franchises have additional fees that support specific initiatives. At FCI, we require franchisees to contribute 3% of gross sales to a brand fund contribution. All franchisees contribute a small percentage that, when combined, becomes a significant amount of money to promote the brand to benefit all franchisees. This is another example of how there’s strength in numbers with franchising.

Can You Make Money as a Franchise Owner?

The average franchise royalty fee is 5%-10% of your gross revenue, leaving you with 90%-95% of gross revenue. These structured fees are costs you would incur in a non-franchised business, but it would also take your time to research the work the franchisor is doing on your behalf. Plus, as a single entity, you would not get the buying power that a group of 900+ franchisees combined can provide.

Franchisors cannot detail how much money you’ll make due to the FTC’s earning claims disclaimer, but many will include performance financials in the FDD as we do. The detail a franchisor includes in its FDD will vary. We provide a lot of detail because that’s part of our business culture. You can (and should) review the FDD with an independent franchise advisor, such as an accountant or lawyer.

The FCI Franchise Opportunity

At Floor Coverings International, we are very transparent about the franchise startup costs and other fees associated with becoming an owner. Our goal is to provide the very best opportunity for you to succeed, from being open about the costs of the franchise opportunity to providing a two-year training and coaching program. When we build a relationship built on trust, we all succeed.

We invite you to complete a Request Franchise Information Form to start the conversation about becoming an FCI franchisee. We are excited about our franchise opportunity and eager to meet you as a potential franchise owner.