I speak with business owners each week who have built tremendous lifestyle businesses which are eager to grow and eager to franchise. In these meetings, I have heard and witnessed skewed realities of franchising (Ex: Franchise Disclosure Documents purchased online for $1,000).

Franchising is a very complex industry; much different than owning & operating your own business units. Over 34% of the franchise industry is under 5 units. Why is this the case? Many factors contribute. However, in my opinion the most contributing factors are the concept lacks franchisability, the concept was undercapitalized, and the leadership team lacks proper franchise executive experience.

The first step in franchising is identifying the franchisability of your concept (See tips here.) The next step, is to identify the willingness and ability to make the proper investment in franchising the business.

These items highlight the true needs and costs associated with franchising:

1.  Intellectual Property

  • Registration of all necessary trademarks and slogans domestically

Anticipated costs for Trademark and Intellectual Property Registration: $5,000-$15,000

2.  Franchise Disclosure Document

  • Franchise Disclosure Document (FDD) that is compliant with franchise laws and the Federal Trade Commission (FTC)
  • Ensure the FDD is representative of the growth vision and anticipated costs for the brand

Anticipated costs for FDD/FA and Exhibits: $20,000-$30,000

3.  Operations Manual

  • Operations manual that documents the systems, processes, and standards that are currently in place and protects franchisor interests
  • Ensure that the operations manual is developed with the growth vision of the concept in mind and aligned to the FDD and FA

Anticipated costs for Operations Manual: $15,000-$20,000

4.  Training System and Manual

  • Development of a system and manual for training that is comprehensive, multi-faceted and inclusive of certifications to assess and confirm learning
  • Plan for the acquisition and development of an e-learning platform
  • Ensure the training system considers the various learning modalities of the trainees
  • Development of a certified training center certification and training program designed to support concepts vision for growth
  • Development of a franchisee on-boarding process, taking the franchisee from inquiry to discovery to franchise award and commitment to store opening

Anticipated costs for Training Systems and Manual: $10,000-$40,000

5.  Organizational Development

  • Development of company vision, mission, & organizational values
  • Development of strategic plan with short-term and long-term goals
  • Development of actionable plans tied to the strategic plan’s short-term goals
  • Creation of organizational chart geared toward vision for growth
  • Creation of job descriptions tied to the organizational chart

Anticipated costs for Organizational Development: $0-$20,000

6.  Comprehensive Sales and Franchise Development Strategy

  • Development of the characteristics and qualities of the “ideal” franchisee
  • Development of a set of standards for awarding franchises
  • Development of unique “brand story” for franchise sales cycle
  • Development of a multi-faceted franchise sales and go-to-market strategy that is designed to acquire the “ideal” franchisee and generate leads
  • Acquire a franchise pipeline management system
  • Development of a managed growth strategy
  • Development of marketing materials which highlight concept uniqueness which will be used throughout the sales cycle

Anticipated costs of a comprehensive Sales and Development Strategy: $5,000-$10,000

7.  Standards Accountability

  • Development of a system for ensuring accountability to brand standards for licensed franchisee businesses (audits, store visit reports, etc.)
  • Creation of standards and accountability reporting mechanisms utilizing technology

Anticipated costs for Accountability Systems development: $10,000-$25,000

8.  Real Estate Development

  • Development of work letter with facility requirements (HVAC, utilities, etc.)
  • Development of store design guide with renderings, interior and exterior, with material lists, buildout standards and two or three options for meeting the identified buildout standards
  • Development of prototype store layouts based on varying square footage options and considerate of ideal workflow
  • Development of a standard list of equipment and identify a vendor or vendors capable of delivering such items
  • Development of criteria and process for selecting a franchise site

Anticipated costs for Real Estate Development: $10,000-$50,000

9.  Demographic Data Analysis & Site Selection

  • Acquisition of a comprehensive system for demographic data analysis
  • Identify the ideal customer profile and target markets constrained by managed growth strategy using existing locations

Anticipated costs for Demographic Data Analysis & Site Selection: $5,000-$40,000

10. Technology (Dependent upon need):

  • Acquire a point of sale system (POS) that meets the needs of the individual franchise business, as well as the franchisor
  • Acquire a loyalty/rewards, mobile APP, & online ordering technology
  • Facilitate the acquisition of an intranet technology that is designed to facilitate the communication of information, support franchise operations, and ensure the maintenance of brand standards

Anticipated costs for Technology: $10,000-$40,000

11. Marketing & Brand Development:

  • Development of a logo that best reflects the brand, is visually appealing and can reasonably withstand the test of time
  • Development of a website that is aligned to the brand standards, mobile friendly, search engine optimized, user friendly and intuitive, and effectively communicates product offerings
  • Development of brand collateral material (e.g franchise development, business cards, uniforms, stationary, marketing material, etc.)
  • Acquisition of a central location for acquiring brand collateral material
  • Development of a grand opening marketing plan, local store marketing program, and 12-month new store marketing plan

Anticipated costs for Marketing & Brand Development: $10,000-$40,000

12. Franchise Sales (ongoing):

  • Nurture all sales leads from initial inquiry to conversion
  • Qualify leads, eliminating those that do not meet minimum criteria
  • Market concept to network of prospective franchisees
  • Utilize a multi-faceted franchise marketing strategy that incorporates various mediums
  • Facilitate Discover Days with prospective franchisees

Anticipated marketing costs per franchise sale: $5,000-$12,000* Budget accordingly

The costs of a successful franchise launch can fluctuate due to prior infrastructure, experience of the leadership team, and the rate of projected growth. Depending upon these factors (as listed above) complete costs of a successful franchise launch can easily reach north of $200,000.

To launch a successful franchise program three factors contribute:

1. The franchisability of the concept.

2. The proper capitalization of the concept.

3. The franchise experience of the leadership team.

Before you franchise; Ask yourself; are you ready to invest $150,000+/- without a guaranteed franchise sale?

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Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/