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How Much Does It Cost to Buy a Franchise?

Becoming a member of one of the fastest-growing industries in the UK can be daunting. Franchising has long been undervalued in its role as an employer and now, with over 700,000 employed within the sector, it’s only accruing more interest amongst potential investors and franchisees.

However, it can be impossible to determine the exact cost of running a franchise in the UK. There is no concrete franchising fee as the nature of the businesses are ever-expanding. Plus, each franchise brings with it a multitude of different training requirements and equipment needs, making it even harder to answer, ‘how much is the average franchise fee?’

In order to help those in the purchasing stages, we’ve put together this guide on franchise costs and fees explained by our experts. 

How much does it cost to buy a franchise?

Finance costs - Rainbow Int

According to the 2018 bfa and NatWest franchise survey, the mean figure for startup costs for franchisees is approximately £100k. However, it’s important to bear in mind that this statistic obscures a large amount of variation as there are franchises that require significant groundwork and investment. Consider the refurbishment of a building or acquisition of a hotel, for example – the resulting figure is significantly higher than the cost of much smaller franchises.

Setting up a business that provides a place where toddlers can take dance lessons requires around £5,000 in total investment. Compare this with the setting up of a care home business that needs £200,000 in investment, and you’ll get a much clearer picture of how the average costs involved in buying a franchise reaches the height that it does. In fact, out of the franchisors that were interviewed by the bfa/NatWest report, over half expressed that their initial costs to a franchisee were less than £40,000.

What’s important to remember is that, while the figures seem higher than you may be able to afford, there is a lower cost alternative in almost every industry and sector operating within franchising today. Not all businesses require the purchase of products or equipment, and even fewer are location-based franchises in need

What is the cost of running a franchise in the UK?

Fundamentally, the franchise model is proven to be financially beneficial for both franchisee and franchisor. However, that isn’t to say that there aren’t certain costs involved that support the infrastructure set up by the franchisor. Franchisee tools that are typically charged for include training for new franchisees, marketing materials to help launch the new operation, and ancillary services. 

These franchise fees are paid yearly too. Typically, the average cost incurred to franchisees to pay for such tools and techniques average out at around 12% of their sales per annum. In addition to the above expenditure, the most common fees charged by franchisors to franchisees are a management service fee, contribution to advertising and an IT support fee – all of which sustain the franchisor’s proven methodology.

It’s also worth noting that 56% of franchisors supply their franchisees with the stock or supplies required to function. 4 in 10 franchisors currently apply a 9% mark-up for these resources. This is valuable information to have when considering which franchise you wish to join. While certain models may have lower joining fees, weighing up the training and equipment costs might make the initial saving redundant.

What is a good franchise relationship?

90% of franchisees have contact with their franchisor’s support staff at least monthly, a third of which relay information most days. This overwhelming sense of community in the industry makes it difficult for leaders to determine what is the best franchise to buy. Currently, franchisees largely feel recognised by franchisors – with 48% rating their support as excellent.

91% of franchisors report that at least some of their franchisees discuss long-term business plans with them, most commonly covering local marketing, expansion plans and exit strategies. Understanding whether a franchisor is engaged or not is of great value to prospective buyers. One who can support you in these areas is, in our opinion, of greater value than one who doesn’t engage at all.

Ultimately, it comes down to what drives you as a leader. At Rainbow, our model does not require you to purchase a unit, nor will you be left to develop your franchise single-handedly. Our franchise is built on the understanding that training and good communication lead to growth that mutually benefits both parties.

Want to get into franchising? Speak to a member of our team who not only can present a more thorough presentation of franchise fees explained, but also guide you through all the perks of working with Rainbow. Take advantage of working with one of the most established specialist cleaning and restoration organisations in the UK and join today.