Before jumping into the world of franchising, it’s important to first be aware of the steps that you must take before officially becoming a franchisee, that way there are no surprises along the way. One of those initial steps includes the process of paying franchising fees – which may take a bit of preparation so that you can successfully arrange to fulfill the requirement(s).
What is a Franchise Fee?
For a business arrangement to qualify as a franchise, the Federal Trade Commission lists several criteria that a franchisor and a franchisee must meet, all of which are outlined in the FTC Franchise Rule. This is a federal regulation that franchisors must prepare in a disclosure document, also known as a Franchise Disclosure Document (FDD), to give to a prospective franchisee.
One of the criteria noted within the FTC Franchise Rule states that the franchisee must make a payment to the franchisor of at least $500 either before or within six months of opening the franchised business. This payment includes the franchising fee, which makes it an essential initial fee to fulfill. Many franchisors require this fee first (and in full) before anything is considered “official.” Franchise fees, whether they are initial or recurring, are paid by the franchisee to the franchisor for the rights to use the franchise’s brand, logo, and operating systems in a particular location. The amount of the initial, one-time franchise fee varies by brand.
Why are Franchise Fees Important?
Besides being an essential part of the process of becoming a franchisee owner, franchise fees are important because they are essentially your “entry fee” into the franchise system and it is what will allow you to acquire the rights to the franchisor’s assets, knowledge and processes. This includes access to the company’s licenses, intellectual property, trademarks, branding, and anything else that is required to begin the operation of your franchise. Think of it as buying a ticket to a movie – you pay for the ticket first, before receiving full access to what the theater has to offer.
Initial franchise fees can also cover any of the training, initial marketing, and support provided by the franchisor to the franchisee. However, it is important to keep in mind that initial franchise fees differ from the total upfront costs, as well as any ongoing fees that can appear, so be sure to research what makes up the initial fees within your FDD.
Franchise Fee Costs & How It Varies
The total cost of franchise fees can differ depending on the size of the franchise, the industry, and the amount of support the franchisor provides to get your new location off the ground. Typically, initial franchise fees can range from $20,000 – $50,000, but this amount can vary depending on several factors, such as owning multiple units and the amount of support that the franchisor will provide. For financial assistance, there are options such as an SBA loan that many franchisees may consider as a way to cover this cost.
To own a Dogtopia franchise location, franchisees will pay $49,500 as the initial franchise fee, and it is to be paid in full when signing the Franchise Agreement. When purchasing a second or subsequent franchise location and if the franchisee is in good standing with Dogtopia, this initial fee reduces to $44,550. Additionally, veterans of the U.S. Armed Forces who purchase their first franchise will receive a 10% discount on the initial franchise fee, as Dogtopia is a member of the International Franchise Association (IFA) and participates in the IFA’s VetFran Program. If you are a qualified veteran, the initial franchise fee will be $44,550 and if purchasing a second or subsequent franchise location, this will reduce to $40,095.
Dogtopia offers a multitude of initial and ongoing support to franchisees, which you can learn more about here.
Although franchise fees are typically considered the initial one-time payment that must be paid, it is important to note that there are subsequent fees required of the franchisee to be made to the franchisor, which are considered royalty fees. These fees can range up to 20% of gross sales and are typically paid on a month-to-month basis, all of which should be identified in your FDD from the franchisor.
Ongoing royalty fees depend on the reoccurring support and services you receive from the franchisor, but most will require this fee to cover the continuous use of property, which in the case of a franchising system, includes the company’s trademarks, business operations, access to support, supply partners, etc. Marketing fees can also lump into this ongoing fee, as franchisors acquire marketing spend to advertise their brand.
To find out more information regarding the process of owning a Dogtopia franchise, be sure to fill out our online inquiry form.