One of the first and most important steps in establishing a new franchise system is deciding what fees to charge. There are no hard-and-fast rules or prescribed structures — every system is different — but fees must always be commercially justifiable and sustainable for both franchisor and franchisee.
Common fees include:
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Initial franchise fee and training fee: a one-off payment to cover the right to join the network and the costs of initial onboarding and training.
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Documentation fee: often charged to recover the legal and administrative costs of preparing the franchise agreement and disclosure document.
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Ongoing franchise fee or royalty: the franchisor’s primary revenue stream, usually expressed as a percentage of the franchisee’s gross revenue, although in some systems it may be a fixed weekly or monthly amount.
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Marketing fund contribution: collected by the franchisor to fund brand-wide advertising, social media, and promotional activities, which must be administered in accordance with the Franchising Code of Conduct.
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Renewal fee: payable when a franchisee renews at the end of the term, generally to cover the franchisor’s costs in issuing updated documentation and training.
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Assignment fee: charged when a franchisee sells their business, to cover the franchisor’s costs of reviewing and approving the incoming party.
In practice, we see a variety of other fees cross our desks, such as opening promotion fees, technology or software subscriptions, and annual conference fees. While these can all be legitimate, every fee should be clearly disclosed and proportionate to the services provided. Importantly, the financial model should test the aggregate effect of all fees to ensure franchisees can still operate profitably.
The Importance of Financial Modelling
One of the most critical building blocks in establishing a successful franchise is a well-prepared financial model. Yet many new franchisors approach this step without careful analysis, benchmarking, or testing across different business types.
A good financial model should ensure that everyone wins. The franchisor must generate sufficient income to support and grow the network, while each franchisee should be able to break even within a reasonable timeframe.
What constitutes a “reasonable” period depends on the nature of the franchise. For example, a mobile or service-based franchise, such as a cleaning or maintenance business, should reach break-even fairly quickly — ideally within around nine months or so. For a fixed-premises QSR or retail franchise, with substantial upfront fit-out and equipment costs, a timeframe of 18–24 months is more common.
Regardless of industry, your model must reflect all establishment and ongoing costs, and it should be robust enough to withstand fluctuations in revenue, costs, and market conditions.
1. Use the Franchise Disclosure Register to Benchmark Competitors
The Franchise Disclosure Register is a powerful research tool. It allows you to see, at a glance, what other franchisors in your sector are charging and disclosing.
You can review disclosure documents from comparable brands to assess initial and ongoing fees, capital outlay, and operating costs. This provides a valuable sense of market positioning — ensuring your fees are competitive and your projections realistic.
While your offering may have distinct advantages that justify a premium, benchmarking against the register helps ground your assumptions in reality rather than optimism.
2. Use Item 14 of the Disclosure Document as a Reality Check
Item 14 of the Franchise Disclosure Document requires franchisors to set out an exhaustive list of all reasonably foreseeable expenses a franchisee will incur in establishing and running the business. Many treat it as a compliance exercise, but it’s also a critical opportunity to test and validate your model.
By itemising every expected cost — from wages, rent and insurance to cleaning, software and maintenance — you can stress-test your assumptions. A franchise lawyer familiar with your industry can help benchmark these figures, identify any overlooked costs, and ensure the disclosure aligns with real-world expectations.
This process should draw on actual bookkeeping data and bank records from existing company-operated sites, adjusted for inflation, location differences, and variable inputs such as rent or local wages. While time-consuming, it’s one of the most valuable steps in ensuring your financial model is both compliant and commercially sound.
3. Make Sure Everyone Wins
A franchisor’s success depends on the success of its franchisees. If franchisees cannot achieve a fair return on their investment, the network will suffer — through high turnover, reputational issues, and legal risk.
Even where cost bases are high, your model should include a buffer for unexpected expenses, such as fit-out cost overruns or supplier price increases. Build your model conservatively: assume that not every franchisee will achieve top-quartile performance, and stress-test your projections accordingly.
A franchise should be a mutually beneficial partnership, not a zero-sum game. Ensuring franchisees remain viable in both the short and long term will always be in the franchisor’s best interests.
4. Use an Accountant — Don’t “Back-of-the-Envelope” It
A robust financial model requires expertise. Partnering with an experienced franchise accountant will help ensure your projections are accurate, defensible, and compliant with the Franchising Code of Conduct.
An accountant can help model cash flow timing, assess break-even points, and run sensitivity analyses to test different scenarios — such as a 10% fall in sales or a 15% increase in key expenses.
Getting the numbers right from the outset will save significant time, money, and stress later. A “back-of-the-envelope” model might get you started, but it won’t stand up when a potential franchisee (or their lawyer or accountant) scrutinises your assumptions.
5. Be Strategic About Early Joiner Discounts
Attracting your first few franchisees is vital to building momentum. Offering early joiner discounts can be a useful tool — but structure them carefully.
We typically recommend discounting the initial fixed fee, rather than ongoing royalties or percentage-based fees. This keeps your long-term revenue model consistent and avoids administrative complications later.
Early franchisees often take on more risk by joining a new system, so rewarding them with a modest initial discount can be a smart investment in your network’s growth.
Conclusion
Sound financial modelling is the cornerstone of a sustainable franchise system. It determines not just how your network grows, but how it endures. A well-prepared model ensures your fees are fair, your franchisees are viable, and your business can scale successfully.
Use the resources available — from the Franchise Disclosure Register to professional advisers — to test, refine, and stress-test your model. By investing time upfront, you’ll create a framework where both franchisor and franchisees can prosper long-term.
At Magnolia Legal, we regularly assist emerging and established franchisors with disclosure compliance, financial structuring, and system sustainability. If you’re developing a new franchise or reviewing your existing model, our team can help ensure your documents — and your numbers — stack up.