Setting Initial Franchise Fees Based on Services Actually Provided

An initial franchise fee should not be set simply by copying other brands or aiming for a large payment when the agreement is signed. For business owners starting to build a franchise network, the figure needs a sound basis: what rights are granted, what work is carried out, and which costs remain the franchisee’s responsibility. This guide focuses on setting the amount and scope of the initial fee, rather than payment procedures.

1. Separate the initial fee from the cost of opening an outlet

Start by defining the initial fee in your offer. Is it payment for the right to use the business system and brand for the term of the agreement, does it cover pre-opening services, or is it a combination of both? Do not leave prospective franchisees guessing what terms such as “complete package” mean.

List everything needed to open an outlet, then group the items:

• Initial rights and services: access to the business system, initial training, review of the outlet design, and opening support within the agreed scope.
• Assets and stock: equipment, fixtures and fittings, opening supplies, and goods for sale.
• Payments to third parties: rent, refurbishment, licences and permits, and any professional services required.
• Post-opening requirements: working capital, royalties, and recurring service fees where applicable.

This grouping is a planning tool, not a government-mandated fee structure. Its purpose is to ensure that no item is charged for twice or overlooked.

If equipment is sold separately, do not use its value to justify the initial fee. If training is included, specify the number of participants, the subjects covered, and whether travel and accommodation are also paid for.

2. Calculate the cost of delivering on your commitments to one franchisee

Prepare a costing spreadsheet based on the actual work needed to get one franchisee ready to operate. Involve your operations, training and finance teams, along with those responsible for outlet openings. Use time records and evidence of expenditure from previous outlet preparations.

For each task, record who will carry it out, the estimated time, direct costs, and required deliverables. For example, opening assistance should not simply be described as “head office support”. Specify who will attend, what they will do, how long the visit will last, and what documentation will confirm completion.

Separate three elements in your internal calculation:

1. Direct costs per franchisee, such as training materials and team travel.
2. An allocation of shared development costs, such as creating training materials and support tools used by multiple franchisees.
3. The planned margin, as part of the franchisor’s commercial decision.

Do not charge the first franchisee for the entire cost of developing the network without a defensible reason. Equally, do not assume that the owner’s time or that of head office staff costs nothing.

This internal calculation does not automatically determine the final price. You still need to assess the value of the rights granted, your capacity to deliver services, and the appeal of the offer. However, the cost of meeting your commitments provides a realistic baseline, helping to prevent low prices from creating service promises you cannot fulfil.

3. Test the value of the offer and your capacity to deliver it

Once you have a draft price, model what would happen if several outlets opened within a short period. Would trainers be available? Would the opening team have to leave your own outlets unattended? Would travel costs change if a franchisee’s location were far from head office?

Set clear baseline assumptions: for example, support covers one location and training takes place at a specified venue. For requirements outside the agreed scope, establish a process for quoting for additional work before it begins. Avoid open-ended statements such as “all additional costs are payable by the franchisee” without explaining what would trigger them.

Also test affordability from the prospective franchisee’s perspective. The initial fee is only one part of the total funding required. An apparently modest price can be misleading if many essential requirements are excluded.

If you offer an introductory price, document the reason, scope and offer period. A discount must not remove services the franchisee needs to operate the system. Do not rely on income from recruiting the next franchisee to cover a shortfall in the opening costs of an earlier one.

4. Align the price with the prospectus and agreement

Indonesia regulates franchising through Government Regulation No. 35 of 2024 on Franchising. This regulation requires agreements to place the parties on an equal legal footing and to be governed by Indonesian law. The minimum required content includes rights and obligations, assistance, facilities, operational guidance, training, marketing, and procedures for paying fees.

These requirements are an important reason to link fees to clear obligations. The initial fee you set is a commercial decision; do not describe it as a government-set tariff or a requirement for achieving profitability.

Create a simple matrix linking each component of the offer to its services, exclusions, responsible party, and relevant agreement provisions. Check that it is consistent with the rights and obligations described in the prospectus. If a brochure says opening support is included in the price, the agreement must not quietly turn it into an extra paid service.

The regulation also requires the prospectus to be provided at least 14 calendar days before the agreement is signed. The franchisor must hold a Franchise Registration Certificate (STPW) before entering into an agreement. Finalise your proposed fee and its scope early enough for prospective franchisees to review the whole offer, rather than receiving important details on the day of signing.

Practical step: before setting the initial fee, prepare three working documents: a list of inclusions and exclusions, a calculation of the cost of delivering the services, and a matrix checking that the offer matches the agreement. A figure is ready to be offered only when your team can both explain and fulfil the commitments behind it.