The initial franchise fee is just the beginning. Many prospective franchisees underestimate the true cost of franchise ownership, focusing only on the upfront investment while overlooking ongoing fees and hidden costs that can significantly impact profitability.
Based on our analysis of 1,200+ franchise brands, we've identified all the costs—both obvious and hidden—that you need to budget for. Understanding these costs is critical for making an informed investment decision and ensuring long-term profitability.
The Real Cost Reality
Based on our analysis of 1,200+ franchises, the median royalty fee is 6.0%, with marketing fees averaging 3.5%. Combined, that's approximately 9.5% of gross revenue in ongoing fees. For a franchise generating $500,000 in annual revenue, that's $40,000-$50,000 per year in ongoing fees alone—before accounting for other operating expenses.
Initial Investment Breakdown
The initial investment (disclosed in Item 7 of the FDD) includes all one-time costs to open your franchise. This is typically presented as a low-to-high range. Here's what's typically included:
Initial Franchise Fee
$20K - $50KOne-time payment to franchisor for the right to use their brand and system
Real Estate & Build-Out
$50K - $500K+Leasehold improvements, construction, signage, decor. Varies significantly by location and franchise type
Equipment & Fixtures
$30K - $200KMachinery, furniture, technology systems, point-of-sale equipment
Initial Inventory/Supplies
$5K - $50KOpening stock, raw materials, initial supplies
Training & Travel
$2K - $10KCosts to attend initial training (travel, lodging, meals)
Working Capital
$30K - $150KCash to operate until profitable (typically 3-6 months of expenses)
Important: Many franchisees underestimate working capital needs. You should budget 3-6 months of operating expenses as working capital. This is critical—running out of cash before profitability is a leading cause of franchise failure.
Ongoing Fees
Ongoing fees are disclosed in Item 6 of the FDD. These fees are paid regularly (typically weekly or monthly) and continue for the life of your franchise agreement. They can significantly impact your profitability.
Common Ongoing Fees:
- • Royalty fees: 4-7% of gross sales (most common)
- • Marketing/advertising fees: 1-4% of gross sales
- • Technology fees: $100-$500+ per month (for POS systems, software)
- • Renewal fees: Paid when renewing franchise agreement (typically every 5-10 years)
- • Transfer fees: Paid when selling your franchise to a new owner
- • Training fees: For additional training programs beyond initial training
Royalty Fees
Royalty fees are the franchisor's primary revenue stream. They're typically calculated as a percentage of your gross sales and paid weekly or monthly. According to our State of Franchising 2025 report, the median royalty fee is 6.0%, ranging from 0.0% to 30.0%.
Royalty Fee Examples:
Watch Out For:
- • Royalty fees that increase over time
- • Minimum royalty payments (even if sales are low)
- • Royalties calculated on gross sales before discounts or returns
Marketing & Advertising Fees
Marketing fees fund brand advertising and promotional activities. They're typically 1-4% of gross sales. Some franchises have separate national and local marketing funds.
National Marketing Fund
Used for brand-wide advertising, national campaigns, and corporate marketing. You typically have no control over how these funds are spent.
Local Marketing Fund
Used for local advertising in your market. Some franchises give you input or control over local marketing spending.
Important: Review Item 6 in the FDD to understand how marketing funds are managed. Some franchises require you to spend additional money on local advertising beyond the marketing fee.
Other Ongoing Costs
Technology Fees
Monthly fees for POS systems, software, online ordering platforms. Typically $100-$500/month.
Renewal Fees
Paid when renewing your franchise agreement (typically every 5-10 years). Can range from $5K-$25K.
Transfer Fees
Paid when selling your franchise. Typically 1-3% of sale price or a flat fee ($5K-$15K).
Training Fees
Additional training beyond initial program. Can be $500-$2,000 per person per program.
Audit Fees
If franchisor audits your books and finds discrepancies, you may be responsible for audit costs.
Insurance Requirements
Franchisors typically require specific insurance coverage (liability, property, etc.). Premiums vary by location and coverage.
Calculating Total Cost of Ownership
To understand the true cost of franchise ownership, calculate costs over a 10-year period (typical franchise term):
10-Year Cost Example:
Note: This example doesn't include operating expenses (rent, labor, inventory, etc.), which are separate from franchise fees. It also assumes consistent revenue—actual costs will vary based on performance.
Cost Comparison Across Industries
Ongoing fees vary significantly by industry. Based on our analysis of 1,200+ franchises:
Average Royalty & Marketing Fees by Industry
Data from Frandera franchise database
Quick Service Restaurants
Home Services
Business Services
Compare fees across franchises using Frandera's comparison tools.
Ways to Reduce Costs
Negotiate Initial Fees
Some franchisors may reduce franchise fees for multi-unit deals, veterans, or special circumstances.
Choose Lower-Fee Franchises
Compare total ongoing fees (royalty + marketing) across similar franchises. A 1% difference can save thousands annually.
Optimize Revenue
Since fees are percentage-based, increasing revenue (while maintaining margins) reduces the relative impact of fees.
Understand Marketing Fund Usage
Ensure marketing funds are being used effectively. Some franchises allow input on local marketing spending.
Plan for Renewals
Budget for renewal fees well in advance. Some franchises offer discounts for early renewal.
Want to explore franchise opportunities?
Get access to detailed FDD analysis, fee breakdowns, and franchisee contacts.
Related Articles
Best Franchises Under $150k: Top Opportunities for Budget-Conscious Buyers
Looking for franchise opportunities that won't break the bank? We analyzed 1,200+ franchise brands to find the best options under $150k with strong growth potential and proven track records.
How to Evaluate an FDD: A Complete Guide to Franchise Disclosure Documents
The Franchise Disclosure Document is your most important resource when buying a franchise. Here's how to evaluate every section, spot red flags, and make informed decisions.
Franchise Investment Playbook: Your Step-by-Step Guide to Buying a Franchise
Buying a franchise is a major decision. This playbook walks you through every step of the process, from initial research to closing the deal, with actionable checklists and timelines.
Ready to Find Your Franchise?
Get complete access to FDD data, financial performance metrics, franchisee contacts, and powerful comparison tools. Free for qualified franchise buyers.
Apply for Searcher Access