Different types of franchise fees pay for services you receive as a franchisee. Learn how fees are calculated and what you’ll pay initially and annually. 

Initial Franchise Fee

This one-time payment is your admission into the franchise. This fee covers the cost of your training and support as you launch your business, including the franchisor’s expenses for the following: onsite training, site selection assistance, marketing, and more. The price to use the brand’s name and collateral can range from a few thousand dollars to tens of thousands, with most falling between $20,000 and $50,000.  

Many franchisors offer discounts on their fee for military veterans. For example, AtWork, a staffing franchise, gives veterans of the U.S. Military a 20% discount on the fee. Other discounts are applied when you invest in multiple locations. Some franchisors will lower this one-time payment by $5,000 or $10,000 for subsequent locations. AtWork takes this approach to another level, offering a 50% discount when opening a second location. 

Royalty Fees

This ongoing expense is your price of using the franchisor’s brand, systems, and continued support. It’s their primary income source. Royalties are typically a percentage of your gross sales; you pay them regularly, usually monthly. 

The U.S. Small Business Association (SBA) notes that royalty payments normally range from 4% to 12% of the franchisee’s gross revenue. Some brands will set a minimum dollar amount that the franchisee must pay. This can actually lead to a franchisee struggling initially because they probably can’t afford the royalty fee while getting up and running. 

Franchises in industries that experience higher sales volume, such as fast food, usually have a lower royalty percentage. In contrast, a franchise that experiences lower annual revenue might have a higher royalty percentage, but this doesn’t mean you’re paying more. To illustrate this: 

A franchisee that owns a fast-food joint, earns $3 million in annual revenue, and has a 5% royalty fee will pay $150,000 annually for their ongoing royalty expenses. Whereas a consulting firm that collects $500,000 in annual revenue and requires  10% of gross sales will pay $50,000 over the year in royalties. So, although their royalty percentage is higher, they still pay less than the fast-food franchisee. 

Some franchisors also implement variable royalty fee structures. This means they either increase or decrease the royalty fee percentage as franchisees increase their revenue. For example, a variable rate could look like this: 

• Revenue up to $1 Million: 6% royalty  
• Revenue from $1 Million to $2 Million: 5.5% royalty  
• Revenue from $2 Million or higher: 5% royalty  

This format can incentivize franchisees to grow their revenue. It can also encourage multi-unit expansion. The increasing structure allows franchisors to effectively price opportunities in markets expected to yield greater sales. 

Marketing Fund

Another ongoing cost is the marketing fee. This is your contribution to the brand’s national and local marketing efforts to promote the franchise. Franchisors usually set this recurring expense up as either a flat rate or a percentage of gross revenue, just like royalty fees. Franchise experts find that most marketing and advertising fund rates are from 1% to 4%. AtWork is on the lower end of this spectrum, charging only a 1% rate on marketing efforts. 

SBA recommends that when considering a franchise, you should calculate the amount you’d pay for your marketing fees and then ask current franchisees if they feel like they’re getting their money’s worth. For example, if you’re bringing in $300,000 annually, that’s about $25,000 on average monthly. If the marketing fee is set at 3%, you’re paying $750 a month to the fund. That’s $9,000 a year, which seems like a lot. But, if the franchisor provides stellar marketing that helps bring in business, it’s worth it.  

Additional Fees

Other components of franchise startup costs include line items like your rent and deposit, utilities, phone, insurance, and technology. These are all laid out in the company’s Franchise Disclosure Document (FDD) under Item 7. Carefully review the FDD before signing any franchise agreement. Besides the fee and initial investment costs, the FDD contains valuable information about the franchise, including the ongoing support and training you’ll receive. Reviewing it with a lawyer to help digest all the information is also recommended. 

Here’s a snapshot of what Item 7 looks like for AtWork:  

Don’t be afraid to ask questions about the different costs. Franchisors want you to succeed, so they should be willing to answer any questions you have about the fees. 

Renewal and Transfers

Lastly, while you’re still considering what franchise to invest in, it’s vital to consider the franchisor’s renewal or transfer fees for your future. A renewal fee is a one-time payment that you’ll make when it comes time to re-sign with the franchise. Typically, franchise agreements range from 10 to 20 years. The renewal price can be the initial franchise fee, a percentage of the current fee rate, or nothing. The National Federation of Independent Businesses says 34.5% of franchises don’t charge a renewal fee at all. Franchisors will also sometimes make you pay a fee for transferring the franchise agreement into someone else’s name or selling it.  

AtWork: A Savvy Investment

Unlike other staffing franchises, AtWork looks to provide you with the most for your investment. Besides our initial investment costs, you can expect to pay a 7% royalty fee, the lowest of our top competitors by at least 15%. Plus, our marketing is included. Other items we incorporate in our investment costs that other staffing franchises don’t include brand development, national account management, website maintenance, testing, social media management, onboarding software, and a job board package.  

We want our franchisees to succeed because when you do, so does our brand. Get started to learn more.