What does the franchise fee include?

The various franchise fees that may be payable under the terms of a franchise agreement can include an initial fee, a management service fee (or royalty) and an advertising fee.  A franchisee is often required to pay the franchisor an upfront fee either before or when he/she signs the franchise agreement. This is often called the initial fee, which typically includes items such as provision of an operations manual, practical training and a start-up package that may include such items as equipment, uniforms, stationery, a stock of products and shop fitting. The costs incurred by the franchisor on items such as market research, planning, professional fees, and franchisee recruitment are often included in the initial fee and passed onto the franchisee.  The franchisee will also be expected to pay the franchisor an ongoing fee, sometimes referred to as a franchise fee, management service fee, service fee or royalty. This payment is for the ongoing use of the franchisor’s goodwill, brand reputation and the established brand name and/or trademarks. The franchisee can also expect ongoing training from the franchisor in respect of any updates or improvements to the franchise system. This ongoing fee may include a contribution to marketing and advertising costs, although an advertising fee is often collected separately from the ongoing franchise fee.