Can you negotiate franchise fees?

by Eric Stites

Rob - Thanks for your question! While the FTC does have rules that all franchise companies must abide by, these rules DO NOT specifically prevent franchisors from negotiating with franchisees. That said, if a franchise company does negotiate different fees, royalties, or other terms with a franchisee, they must disclose this fact in their franchise disclosure document (FDD). Because of this disclosure requirement, many franchise companies will not negotiate on their fees. The specific terms of initial franchise fees, royalties and other investment requirements will be listed in Item 5 - 7 of a franchise company's FDD.

One area that IS commonly negotiated in the franchise agreement is territory. This includes overall territory size, protection areas, additional development rights, and a development timetable.

The size of a franchise company has a lot to do with your negotiating power. Large, proven systems typically will not negotiate on anything other than territory. Newer or smaller systems will often be more flexible and may negotiate on many things in the franchise agreement.

With the current downturn in the economy, many franchise companies have become much more aggressive with their development efforts by reducing their fees, reducing their royalties for startup franchisees, and other items to help attract more franchisee candidates. Check out this recent article in Franchise Times on that exact topic.

Another suggestion I would offer is to speak with a good franchise attorney. An experienced attorney can help you understand the franchise agreement in much more detail, and also point out areas where you should try to negotiate more favorable terms. One of the best franchise attorneys in the business is Richard Rosen at Rosen Law. Richard can be reached at 212-644-6644 or rlr@rosenlawpllc.com.

Bottom line, many franchise companies are being much more flexible, allowing new franchisee candidates to negotiate more attractive deals to get their new business started. My advice... shop around and find the best deal you can. That said, your primary focus should still be on franchise companies with a proven record of success and high franchisee satisfaction (Obviously, getting a "deal" on a mediocre franchise is no deal at all!)

For our complete list of top franchise companies ranked by franchisee satisfaction, please visit our franchisee satisfaction awards website at www.FBR50.com.

Rob, I hope this is helpful! Good luck with your research and don't hesitate to call or email me with any other questions.

Best of success with your new franchise!

Eric Stites
Founder and President
Franchise Business Review
Office: 866.397.6680
Email: eric at franchisebusinessreview dot com