Home service franchises have gained significant traction in recent years as they offer unique and exciting opportunities for new and experienced business owners. Many factors contribute to the growing demand for home services, including their potential profitability and the lower-cost franchise opportunities available. Whether you’re interested in plumbing, HVAC, landscaping, cleaning, or other home services, the market is projected to grow over 35% by 2026.
Investing in a franchise can be an attractive opportunity for aspiring entrepreneurs looking to become business owners with the support of an established brand. But before signing a franchise agreement, it’s important to understand the franchise costs and fees clearly. We’re here to help break down the cost of starting a franchise. Keep reading to learn the key components of a franchise’s initial investment.
Understanding the Franchise Initial Investment
Starting a franchise comes with initial start-up costs and franchise fees. These costs are a necessary component of the franchising business model. Most of the costs and fees for a home service franchise will be outlined in the Franchise Disclosure Document (FDD), and they typically include a range of expenses required to set up and launch your business.
This initial investment offers several benefits to franchisees, such as providing you access to:
- An established business model
- Ongoing training
- Marketing and operational support
- A network of like-minded entrepreneurs
These costs are investments in your business’s success as franchises offer a pathway to business ownership with a higher chance of success, minimizing risk. Of course, it’s important for potential franchisees to carefully evaluate the value the franchisor offers in return for these fees to ensure there’s a mutual benefit.
While the specific costs can vary depending on the franchisor and franchise brand, here are the primary categories to consider:
The Initial Franchise Fee
What is a franchise fee? The initial franchise fee is an upfront payment for the right to use the franchisor’s brand name, trademarks, and business model during the term of the Franchise Agreement. In some cases, this fee may also cover onboarding costs, like training and marketing. The fee amount varies depending on the franchise, industry, or territory size and can range from $25,000 upward.
This initial franchise fee benefits franchisees by giving them access to a proven, successful business model that can significantly reduce the risks associated with starting a new business from scratch. For some home service franchises, like Neighborly®, the initial franchise fee can also provide a market designation to the franchisee for whichever territories have been purchased.
Royalty Fees
Franchise royalties, or ongoing license fees, are payments made to the franchisor. These fees contribute to the continuing support and operational assistance that make franchising an appealing investment. Usually counted as a percentage of sales revenue, royalty fees commonly range from 4% to 12%, but they can also be a flat fee.
Marketing Fees
One of the great benefits of becoming a franchise business owner is brand recognition. Working under an established brand name, consumers already know what to expect from your business. With a franchise, you’ll immediately have brand recognition and defined marketing. The brand recognition of a franchised business can also benefit you with economies of scale and lower costs when it comes to buying PPC advertising in search engines.
Franchisors spend significant time and money marketing their brand to potential customers, which also helps you as the franchisee. In exchange for this marketing support, you’ll typically pay monthly marketing and advertising fees, usually a percentage of revenue, but sometimes a flat fee. Standard marketing fees for many franchises range from 2% to 5% of the gross revenue.
Equipment and Supplies
In addition to the initial franchise fee and ongoing costs, you may need to account for various startup costs. However, home service franchises often have minimal startup costs, unlike other industries.
Depending on the type of franchise that is opened, equipment and supplies costs may include:
- A vehicle for transportation
- Cleaning supplies for a residential cleaning franchise
- Tools for a handyman service
- Lawn care equipment
Furthermore, some home service franchises can initially be operated on a home-based business model, meaning you won’t need to factor in real estate, construction, or rent costs. You always have the option to open an office at a later date based on business size and scope.
Neighborly Can Help With Franchise Financing Options
As the world’s largest home services company, Neighborly® offers a wide range of franchise brands at different investment levels, including low-cost franchise options, all focused on the growing home services space.
There are many options for funding your franchise investment, such as:
- Self-funding with payment in full
- Third-Party Lenders
- Small Business Administration (SBA) Loans
- Investment Account Rollovers
- Line of Credit
- Franchisor Financing
To learn more about what franchise financing options are available to you to start your franchise ownership journey with confidence, watch our on-demand webinar: Financing a Franchise 101: What You Need to Know
Or, you can explore cost by brand for a preview of each brand’s initial franchise fee and estimated initial investment range.
To learn more about franchising with Neighborly, contact us today.