To Make Money, Understand the Real Estate Franchise Cost
Franchise fees are one of the most important aspects for any potential franchisee to consider before making a decision about which franchise opportunity to choose ─ or if to start their own business, in property management, or as independent brokerages, for example. For some, franchise fees can be a deterrent: they appear to reduce the bottom line. For others, franchise fees are a cost of doing business and are worth every cent.
How much is a real estate franchise? What fees will you pay to own a franchise, and how do the pros and cons of franchising in real estate stack up for you?
Here’s all you need to know about franchise fees.
What are franchise fees?
Franchise fees are what you pay to use the trademark, system, and business model of a franchisor. The fee is typically paid in exchange for the right to operate under the franchisor’s name, sell their products or services, and use their business model and systems.
What benefits does paying franchise fees buy you?
Why do so many entrepreneurs buy franchise opportunities rather than start a business from scratch? What is it that the franchise fees give you access to, that you wouldn’t have free access to if starting your own business?
Jumpstarting your business by using a proven business model is more attractive than having to build it from scratch. Buying into a recognized brand should also help make customers immediately regard you as legitimate. This could save you a substantial amount that you might otherwise need to pay for marketing, sales, and brand building.
You’ll be able to make full use of the support and training from the franchise owners. You may be given the necessary equipment as well as a ready-made marketing plan, which will allow you to start your business with confidence. Many franchise companies provide ongoing training, help with hiring employees, and advice and aid to lease and equip offices. Plus, the purchasing power of being part of a larger brand could reduce costs on essential supplies.
Smaller upfront costs and increased customer reach increase your potential revenues and profitability. The brand recognition among customers could leapfrog you above competitors.
How much are real estate franchise fees?
Now that you have an appreciation for why franchise fees are levied on a franchisee and the benefits you’ll receive by paying them, let’s examine the main franchise fees you’ll pay.
Initial franchise fee
The initial franchise fee is a one-time payment that franchisors charge to cover the costs of setting up the franchisee’s operation. It gives you the right to operate under the franchisor’s brand name. You’ll pay this before opening for business.
Ongoing royalty fees
The ongoing royalty fee is a percentage of the franchisee’s sales that is paid to the franchisor monthly. The royalty charged varies between franchise opportunities. It is usually a fixed percentage and may depend upon the clauses in the franchise agreement. It’s used to cover expenses that might include technology upgrades, and ongoing training and support, as well as providing a profit stream for the franchisor.
You may be charged other fees, too. For example, some brands may charge a monthly marketing fee to help cover the costs of national marketing campaigns. These types of fees vary between franchise companies.
Don’t forget, such fees pay for things such as training and support, marketing, technology services, and more. These are all costs that you would have to bear yourself if setting up a business from scratch.
As you can appreciate, because every real estate franchise is unique, so, too, are the fees they charge. When comparing fees, you should always compare what you are getting for your money, and if it is valuable to you. For example, if you have little experience in real estate, you should measure the specific training you will be given to help improve your knowledge and capability.
Before investing in a real estate franchise, ensure you have enough capital
As well as being sure about the business model and location, you should also ensure that you have enough capital to invest before making a commitment to buy a real estate franchise. You’ll also need to consider other business costs, and have enough working capital in reserve as your business grows.
Due diligence and a good accountant are essential, as is the advice of a business consultant with specific experience in helping entrepreneurs succeed in their franchising journeys.
If you are considering buying a real estate franchise, start your journey by taking our 5-minute franchise aptitude test today. It’s the first step to success as the owner of a real estate franchise.