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Franchisors often charge a franchise fee to be paid at the start of the agreement (either in full or as a percentage) as a deposit. You may have to sign a deposit agreement. The deposit may or may not be returned to you if you decide not to go through with the franchise.
For example, in Alberta, this deposit can be up to 20% of the initial franchise fee. However, once you’ve made the agreement, the initial franchise fee can vary from $5,000 to $75,000 — possibly more.
In Canada, the average initial franchise fee is $23,000, and covers costs like support, training, franchisee recruitment, grand opening, franchise development and site identification. Generally, this fee is higher the more recognized and established your franchisor company is.
Royalties are often due on a weekly or monthly basis to give the franchisor a portion of your sales. These can vary from 0–20% of gross sales, depending on the level of support and services you get from the franchisor. Some franchises don’t charge a royalty fee, but in these cases the cost is often built in through rebates or mark-ups on products or services.
You may have to pay other costs, like advertising fees. Some franchisees have to contribute to an advertising fund for the franchise system as a whole. This means that fees from all locations can be pooled into a much larger budget.
You’ll also need an equity investment, which helps keep your franchise location going until you’re profitable. On average, this investment amounts to around $160,000 in Canada.
Other costs that you may run into could include research and development funds, leasehold improvements, furniture, fixtures, equipment, supplies and costs of employee training. Insurance costs are often included within the franchise agreement, but be sure you’re adequately insured before you open your doors.
In Canada, estimated overall costs to open a franchise can range anywhere from $50,000 or less for service franchises to as much as $500,000 or more for more sophisticated franchises. For more information, visit the Canadian Franchise Association‘s website.Visit the GoForth Blog