Franchise Royalty Fees: Understanding Your Investment

May 1, 2023

Before you make a franchise decision, understand the franchise royalty fees and other expenses. Creative Colors International is here to help you learn what you can expect from common franchise fees.

Perks of Franchising

Business ownership is on the rise. Two out of five Americans planned to debut a business in 2023, according to a survey of 1,251 people conducted by Digital.com, an online consulting firm. Striking out on your own requires a leap of faith, but it can be rewarding. People are launching new businesses to be the boss and earn more money.

Despite the advantages of entrepreneurship, starting a new business is risky. It requires hard work, dedication, and courage. One out of every 12 businesses closes each year, primarily because of low cash flow, the U.S. Small Business Administration (SBA) reports.

Creative Colors International HQ Ownership and Management Team (left to right)
Kelli Bollman, Terri Sniegolski, Gary Foster, Mark Bollman

Franchising gives entrepreneurs the tools they need to launch a business with less risk than starting one from scratch. Franchises have a financial history of success, and being a recognized brand often means they come with a built-in customer base. As part of a franchise deal, you’ll get training, marketing guidance, and a network of peers who can share best practices.

Jim and Joann Foster started their leather and vinyl repair business in 1980, and today CCI is run by the second generation of the family. CCI started franchising in 1991 to facilitate growth. CCI is a low-overhead, high-reward opportunity for people considering entrepreneurship. Our franchise owners operate a local repair and restoration business with a national reputation. We specialize in fixing rips, tears, cuts, burns, and fading in leather and vinyl for residential customers and businesses. CCI service technicians restore furniture, cars, RVs, boats, and airplanes. We also save businesses money on replacement costs by sprucing up their existing seating and flooring.

Common Franchise Fees

Similar to starting any business, you’ll need to secure funding for your franchise venture. Fortunately, franchises have a vast knowledge of the best franchise funding options to get started and lenders are more likely to invest in a franchise because of its reputation and past success stories. The SBA offers loans, and many franchises provide in-house financing to qualified applicants.

To gain access to a comprehensive business plan, training, and support, franchise owners are required to pay startup charges and ongoing franchise royalty fees. Here are the top four franchise fees:

  • Initial franchise fee. An initial franchise fee is a one-time payment made by a franchisee to a franchisor to obtain the right to operate a franchise business. It’s intended to cover the costs associated with establishing the franchise relationship, such as training and support provided by the franchisor, assistance with site selection and lease negotiation, and the use of the franchisor's trademark and intellectual property. A single-unit franchise fee ranges from $20,000 to $50,000, according to the SBA.

Franchise fees do not have wiggle room and are a fixed, one-time cost. To make franchising accessible, some franchises offer discounts on their franchise fee to veterans and minorities. You can also reduce the per-unit franchise fee by signing an area development deal. CCI’s franchise fee is $49,500. We offer a $1,500 discount on the franchise fee for former members of the military.

  • Startup fee. Many franchises require a startup fee or territory fee as part of the franchise deal. The startup fee often covers site selection assistance, lease negotiation, initial inventory, marketing materials, and access to the franchisor's proprietary software and systems. CCI charges a startup fee of $34,500. To secure financing, we partner with Guidant Financial, a leader in small business financing.
  • Franchise royalty fees. The franchise royalty fees are an ongoing payment made to the franchisor. It is generally a percentage of a franchise location’s gross revenue or sales.  In exchange for the royalty fee, the franchisee receives ongoing support from the franchisor, operational training, and continued access to the franchisor's proprietary systems and software. The royalty fee can vary widely depending on the franchise and industry, but it typically ranges from 4% to 8% of the franchisee's gross revenue or sales.

After attending an initial three-week training, CCI supports its franchise system by offering a toll-free hotline, field visits, regional meetings, technical seminars, and an annual conference. CCI’s royalty fee is 7.5% of gross sales, including a cash minimum determined by the time the business is open.

  • Advertising fee. For a small fee, franchises have access to local and national marketing packages to raise brand awareness. Franchises pool their advertising dollars to boost the impact of their message. For a cost of 1% of gross sales, our marketing package covers customer list building, direct mailing campaigns, online advertising, website search engine visibility/optimization, and on-demand advertising materials.

Additional Startup Expenses

It's important for potential franchisees to carefully review the Franchise Disclosure Document (FDD) and franchise agreement to understand all fees and expenses associated with the franchise system they are considering. In addition to common fees, there are some other expenses you may need to pay.

  • Rent or lease payments. If the franchisee leases a business location, you’ll need to pay rent, which can vary widely depending on the required size and location. CCI is a mobile business. Our franchise owners take care of back-office administration from a home office and use a mobile van to make repairs. Every franchise owner will need to lease or buy a van that fits our specifications. To ease the burden of securing a van, we have a partnership with Advantage Leasing and Enterprise Fleet Service for financing.
  • Inventory and supplies. Many franchises require purchasing inventory and supplies from the franchisor or other approved suppliers. Franchises have collective buying power, and most brands form partnerships with vendors to keep costs low. Our products and dyes are water-based and environmentally sustainable.
  • The franchisee will need to purchase or lease equipment and fixtures necessary to operate the business, such as cooking equipment, cash registers, and display cases. CCI’s owners will need to set up a home office, but their mobile vans come equipped with all the equipment they need to serve customers.
  • The franchisee will need to obtain insurance coverage, such as liability insurance, to protect the business and its customers.

Franchising cuts out the guesswork. We have business experience and know what it takes to be successful. Being able to calculate startup costs makes it easier to secure funding and manage expectations as you pursue entrepreneurship.

Join the Ultimate Mobile Leather Repair and Restoration Franchise

If you are ready to learn more about CCI’s flexible, in-demand business model, request franchise info to connect with someone from our team.