Setting the Initial Franchise Fee for a Business in Malaysia

The initial franchise fee is more than the price of using a business name. For business owners looking to build a franchise network in Malaysia, it should reflect both the rights granted and the work involved in helping franchisees get started. Copying another brand’s fees without accounting for your own costs can leave support underfunded or make your offer difficult to explain. Start by defining what the fee covers, then decide on the amount.

1. Define what the initial fee covers

Separate the initial franchise fee from the total capital needed to open an outlet. Franchisees may still need to pay for rental deposits, fit-out works, equipment, stock and working capital. Combining everything into a single figure without explanation can lead prospective franchisees to assume that paying the franchisor is enough to get the business open.

Prepare a scope sheet explaining three things:

• Rights granted: for example, the right to operate the business using the brand and franchise system for the agreed term.
• Start-up support: for example, pre-opening training, guidance on operational preparations and on-site support from the team at launch.
• Exclusions: for example, trainees’ travel, accommodation, equipment purchases or contractors’ work.

State the limits of support explicitly. “Training provided” is too vague unless you specify the number of participants, the training location and whether refresher training carries an additional charge. Similarly, “opening support” should explain what the team will do, rather than simply promise that someone will attend.

This sheet is an internal planning tool whose contents will later inform the offer documents and agreement. It is not a substitute for legal documentation. Its purpose is to ensure that the owner, operations team and finance team share the same understanding of what the fee covers.

2. Calculate the cost of delivering your promises to each franchisee

List the work required whenever a new franchisee joins the network. Use time and expense records from opening your own outlets as a starting point, but identify separately any work specific to the franchise relationship.

Costs worth assessing include trainers’ time, training materials, travel for the opening team, setting up system access and initial administration. Permanent employees’ time also has a cost, even if no additional invoice is issued.

Distinguish between two cost categories:

• System development costs: the initial preparation of manuals, development of training materials and creation of the franchise package.
• Per-franchisee onboarding costs: the work and expenses that recur whenever a new franchisee opens an outlet.

Do not assume that the first franchisee must bear the entire cost of developing the system. Equally, avoid spreading that cost across an unrealistically optimistic number of openings, making the fee appear affordable but unsustainable.

For internal planning, build a calculation that combines onboarding costs, a reasonable allocation of system development costs, a delivery contingency and your target margin. This is neither a legally prescribed formula nor a guarantee that the market will accept the price.

Test less favourable scenarios too: training may need to be repeated, an opening may be delayed or additional travel may be required. Decide which costs the franchisor will absorb and which require further agreement before the work is carried out.

3. Place the fee within Malaysia’s legal framework

Malaysia’s franchise sector is regulated by the Franchise Act 1998 [Act 590], including amendments that came into force in 2022. Under section 6, franchisors must register their franchise with the Registrar of Franchises before offering it for sale. Calling a payment a “joining fee” does not remove the registration requirement.

Section 15 requires a copy of the franchise agreement and disclosure document to be provided to prospective franchisees at least ten days before the agreement is signed. The disclosure information includes a breakdown of the initial investment and ongoing payments to the franchisor. The initial fee should therefore not be presented as a standalone figure without explaining the other payments still required.

The franchise agreement is also subject to mandatory content requirements under section 18. Ask a lawyer familiar with franchise law to review how the fee, what is provided in return, the payment schedule and refund circumstances are set out. Do not use blanket clauses such as “all payments are non-refundable” without checking their compatibility with franchisees’ statutory rights.

Distinguish legal obligations from commercial decisions. The Act provides the compliance framework; setting an appropriate fee still requires an assessment of costs, the value of the offer and your ability to deliver the promised support.

4. Establish approval controls and evidence of delivery

Before finalising the fee, ask the operations team to confirm that the listed support can be delivered and the finance team to confirm that the estimates are sound. Avoid leaving pricing decisions solely to the sales team.

For each element of support, assign a responsible person, a delivery timeframe and evidence of completion. For example, record training through attendance logs and participant assessments, and document opening support through a checklist of completed tasks. These records help both parties understand what has been delivered and what remains outstanding.

Also establish who has authority to approve discounts. Reducing the fee without adjusting the budget can diminish the resources available to support that franchisee. If an exception is granted, record the reason and its effect on the scope of support, rather than allowing verbal promises to dictate delivery.

Practical step: Before choosing an initial fee, prepare a single sheet listing the rights, support, exclusions, costs and people responsible. If that sheet is not yet clear, the price is not ready to be included in a franchise offer.