Calculating the cost of a franchise can be very complex. It is, therefore, nearly impossible to give an average cost of franchises in general. Franchise cost is something that must be assessed when certain factors are known. These include the franchise, the proposed business size, and the location.
There is a long list of factors that will affect franchise cost. To begin calculating, a person must first decide which industry she is interested in. There is a wide range to choose from including restaurants, retail stores, and Internet cafes. In many cases, if a person is able to choose an industry, she may be able to get an estimated range of the associated franchise cost.
More accurate calculation will require her to choose a specific franchise. Once she does this, she will have many important pieces of information that will help her determine the franchise cost. Each franchise generally has a franchise fee, which is an amount usually required upfront. This amount can vary and often increases with franchises that are well-known or highly successful.
Choosing the franchise will also generally allow a person to know the rate of royalties she will be subject to pay. Royalties are generally a percentage of sales or profit that is paid to the franchisor. If the amount is a specified figure, it will be easier to calculate. Otherwise, it will be necessary to take the percentage rate and to get an estimate by applying it to sales projections.
Buying and operating a franchise is usually a complex transaction. In many cases, it is necessary to employ the assistance of professional services, such as attorneys and accountants. Payment of these fees may only be necessary in the beginning or it may be necessary to calculate these as ongoing or periodic costs.
Another periodic cost is licensing. At a minimum, a business license is likely to be required for legal operation. In addition to this, special licensing and permits may be required for specialized industries or to obtain certain privileges, such as serving alcohol. In most instances, items in these categories will need to be repurchased or renewed.
Then, it is also necessary to calculate the cost of establishing and operating the business. Both the location and the size of the establishment will affect the franchise cost. Purchasing or renting commercial space in a major metropolitan area is likely to be significantly more expensive than the same amount of space in a rural area. Furthermore, the larger the establishment, the more employees’ wages that will likely need to be added to the list of franchise costs.
Once this is calculated, it is also necessary to add the costs of any inventory that will be required. Equipment and furniture must be added to the list of costs. When doing this, repair and replacement should be considered. Then, there are operational costs, such as electricity, water, and insurance.