There are set of factors that influence the franchise fee, which franchisor has to consider before arriving at the franchise fee. A structured franchise fee is a product of a well analyzed process of determining the fee and how IIHT Franchise believes in transparency and upholds culture built on trust with each of its partners.

2. For a Franchisor, Franchise Fee is a huge source of capital that
suffices needs of capital and other crucial expenses of the
business. A structured franchise fee is a product of a well
analyzed process of determining the fee. For a new business
which has just begun to franchise, the process might not be as
complex, however as the number of franchises grow a franchisor
dedicates paramount energy fixing the right franchise fee.

3. To Calculate The
Same The
Franchisor Takes
Into Consideration
Many Important
Components
• Determining the cost
of the rights
• Cost of initial training
• Cost to allocate
support resources
• Initial marketing cost
• Profit margin
• Procurement and set
up costs

4. There are factors
that also influence
the franchise
fee, which
franchisor has to
consider before
arriving at the
franchise fee, such
as:
• Franchise fees charged
among existing
franchises
• Other ongoing fees such
as royalty fees, training
fees
• Provision of finance aids
• Market value and
competitor fees
• Policies of the country in
relation to franchising

5. It is however important for the franchisor not to be too
prudent in setting franchise fees as it can make or break
business. Therefore franchisors study the market over years
and analyse the growth of business, profitability of each
franchise for the franchisor as well as the franchisee and fix
up a cost that is most acceptable. Hence determining the
franchise fees is called both an art and science.
There is however
theoretical
approaches too, to
fix up franchise
fees.
a. Cost based
approach
b. Investment based
approach
c. Duration of
franchise approach

6. Simply put cost
based approach
accounts for all
the
expenses
incurred in the
process of initial
set up of the
franchise
plus
the
profit
margin.

7. Cost of granting franchise
Cost of granting franchise
++
Cost of initial training
Cost of initial training
++
Cost of support to set up +Profit margin
Cost of support to set up +Profit margin
==
Initial franchise fees
Initial franchise fees

8. This approach takes
into consideration the
total cost including all
expenses to open a
franchise including
the expected profits
and
cost
of
continuous
support
till the end of said
term;
and
then
calculating the initial
fees as a part
percentage of the
whole.
Initial
franchise fee in this

9. Sometimes
franchisor opts for
the duration of
franchise
approach wherein,
the
initial
franchise fee is
calculated as a
cumulative fee for
each of the years.

10. Apart from the initial franchise fees, franchisors also charge
ongoing franchise fees such as:
a)
b)
c)
d)
e)
f)
Royalty Fees
Training Fees
Marketing Fees
Advertising Fees
Procurement Fees
Specific Services Fees

11. Good relationship between franchisor and franchisee is
possible only with clear cut transparency in all aspects of the
business, especially the finances. Each fee charged by the
franchisor is backed by a potent rationale. It is important
however that franchisors share the same with the franchisee.
This helps in building mutual trust. IIHT Technologies
indeed believes in transparency and upholds culture built on
trust with each of its partners. It believes that declaring the
revenue system and being transparent about its financials
ensures credibility and mutual trust. Not necessarily as a
franchisee one could be happy about all the information
he/she receives but he/she will definitely have access to

12. Corporate Headquarters
#15,Sri Lakshmi Complex, 4th Floor, St. Marks Road, Bangalore - 560 001. India
Tel: 91 80 6160 4545 e-mail: franchise@iihttechnologies.com
web: www.iihttechnologies.com/