From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company

Chapter 8. Pricing Franchises

To be successful as a franchisor, you need to price your franchises correctly. If you charge your franchisees too much, they will not buy into the system. If you charge them too little, you are leaving money on the table that you could take home in the form of profit.

As a franchisor, you need to consider two basic components to pricing your franchise: the up-front franchise fee and the ongoing royalty rate. Unfortunately, most franchisors don't know how to set their franchise fees or royalty rates. One franchisor that I interviewed told me he set his royalty rate at 5 percent of sales because the number “had a nice ring to it.” Another franchisor told me that he set his franchise fee at $20,000 because that was “a ...