May 2021 - Bay of Plenty Business News

16 BAY OF PLENTY BUSINESS NEWS May 2021
What are the fees and where do they go?
FRANCHISING
> BY NATHAN BONNEY
Nathan Bonney is a director of Iridium Partners. He can be
reached at nathan@iridium.net.nz or 0275-393-022
A recent conversation with a franchisor client prompted some
discussion and reflection on the franchise model, in particular what
does a franchisee get for their fees and are they good value? These
are really good questions, and usually the first asked by any potential
franchisee after, how much does it cost to purchase?
The answer to what are the
fees, varies depending
on the industry or sector,
and the particular system.
But we can look at the typical
fees associated with a food and
beverage franchise as these
generally sit with-in a range.
We can then look at where do
they go, and what do you get
for the fees?
Initial franchise grant fee
This provides the franchisee
access to and use of the intellectual
property including systems
and processes, branding
and of course any proprietary
products. Generally, these
range from $30,000 to $50,000
depending on the system and
what is called the initial term,
or the period of the franchise
agreement.
In my opinion, even at the
higher end, this is extremely
reasonable and by no way
captures the collective cost of
developing the franchise system
and know-how.
For most systems to get to
that point they have invested
heavily over a number of
years, tested, refined and
proven systems and processes
and the initial franchise fee is a
mere fraction of what it would
cost an individual to actually
duplicate.
Training fee
A key part of buying into a
franchise is learning the business
and training a new franchisee
is a franchisor’s core
task. Sometimes a training fee
or component is included in
the initial franchise grant fee
or sometimes separated out as
a separate fee.
Good franchise systems
invest very heavily in their
training programs from both
a system and on a personnel
basis.
Rarely could the training
fee be considered a revenue
generator for the franchisor. At
best a training fee or allocation
from the initial franchise fee is
cost recovery.
Where a franchisee buys an
existing franchise, they usually
pay a training fee to the franchisor.
But bear in mind this is
not actually growing the number
of franchisees or business
units.
Ongoing royalties
For most food and beverage
systems, the ongoing franchise
fees or royalties are based on
a percentage of revenue or
turnover.
This ranges from a very few
systems as low at four percent
through to seven percent, with
the majority in the middle.
What do you get in return?
In absolute terms, this will
depend on the system, but
will include ongoing access to
system developments, group
purchasing, which in itself
may offset the franchise fees,
support and guidance and most
importantly use of the brand,
recognition of which may be a
massive revenue driver.
Group marketing
contributions
This is sometimes referred to
as Ad-fund. It’s important to
remember that this is not revenue
for the franchisor and they
do not directly benefit from it.
It is spent on behalf of the franchisees
to increase revenue in
their businesses.
The franchisor indirectly
benefits from an associated
increase in revenue through
any franchise fees.
Percentages range from two
per cent through to perhaps six
percent of revenue. Not bad
when the old rule of thumb
is that you should allocate at
least five percent to marketing
your business, and they
the individual franchisee units
benefit from the collective
group spend, which is what
makes it so powerful.
Technology, systems and
special fees
Some systems have either
one-off development fees, or
special fees to cover the costs
of specific technology or systems,
are perhaps a specific
development program.
Again, these are not usually
revenue generators for franchisors
and generally offset specific
costs in the system for the
franchise business units.
And again, in many or most
cases the costs may be far
lower than what an independent
business operator would
have to pay.
Are the fees good value?
In my opinion, as a general
framework, yes absolutely
these fees are good value and
they will usually represent a
percentage of the costs of an
independent business unit to
recreate what is provided.
But ultimately answering
the question of value will
depend on the franchise system,
how well-developed and
supported it is, whether it has
good systems that create quasi-value
for the franchisees and
associated cost savings.
And whether or not it has
a marketing programme that
generates return via increasing
brand awareness and sales.
NEWSBRIEFS
Winners selected for the Page/
Acorn Engineering Scholarship
Paul
O’Driscoll
David
Forbes
David
McConnochie
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TAU6195-04 © Forsyth Barr Limited April 2021
The Acorn Foundation is pleased
to announce the five recipients of
the 2021 Page/Acorn Engineering
Scholarship.
Members of the Acorn Scholarship
Committee review applications put forward
from local engineering firms, including
references and progress reports provided
by Competenz to select the best
second year apprentice candidates each
year.
The following recipients and their
respective workplaces will receive funding
to assist with expenses and equipment
for the next two years from the Bob & Pat
Page Fund:
• Torin Bryon, Te Puna – Boshier
Engineering
• Omri Cook, Papamoa Beach – Gamminco
Industrial
• Giovanni Dryfhout, Te Puke – Page
Macrae Engineering
• Ronan Mitchell, Mt. Maunganui – Page
Macrae Engineering
• Connor Watkins, Papamoa Beach –
Contract Mechanical Services Ltd
“The Page/Acorn Engineering Scholarship
programme has been running for 13
years. Nearly 60 well-deserving apprentices
and their workplaces have received
support due to the generosity of Bob and
Pat Page.
“It is wonderful to have the Acorn
Foundation manage such a worthwhile
endeavour,’ said Lori Luke, general manager
of the Acorn Foundation.
The Page Macrae Engineering team
were thrilled with the awards, saying “On
behalf of the Page Macrae team and the
Omri Cook, Papamoa Beach –
Gamminco Industrial.
two successful applicants, we thank you
and all those involved in the Acorn Foundation
for this wonderful opportunity for
the apprentices and their employers. So
gratefully received and appreciated!