Setting an initial franchise fee for your first franchisee

When you turn your existing business into a franchise, you need to decide how much joining the network will cost. An initial franchise fee is not an arbitrary admission charge: prospective franchisees must understand what they are paying for. To build a healthy franchise network, distinguish between one-off joining costs, ongoing support and investment in the franchisee’s own outlet. This will help you set a fee you can justify for a package you can deliver.

1. Define what the initial franchise fee covers

The initial franchise fee is a one-off payment made when joining the franchise network. Dutch law sets neither a standard amount nor a mandatory calculation method. So start not with what other franchises charge, but with the package you will actually provide.

List the one-off services and resources you will provide to a new franchisee. These might include an introduction to your franchise system, setting up accounts, guidance on the initial fit-out and access to the franchise package you have developed. For each item, state what the prospective franchisee receives, who will deliver it and when it will be ready.

Then separate the costs into three categories:

• Joining the network: one-off work and rights covered by the initial franchise fee.
• Ongoing services: support covered by the recurring franchise fee.
• Outlet investment: expenditure such as equipment, stock and refurbishment, budgeted for separately.

Avoid double charging. If initial training is included in the franchise fee, it should not unexpectedly appear again as a separate compulsory charge. Are travel, accommodation or examination costs excluded? Make that clear in advance. A clearly defined package matters more than an attractively low headline fee with numerous compulsory extras.

2. Base the fee on evidence from your own business

Use your existing business to test how much initial support is needed. Track how long it takes to familiarise someone with relevant experience with your way of working. Include preparation, feedback, account setup and follow-up support around the opening. Time you take for granted as the owner often represents a real support cost for a new outlet.

Next, calculate the direct cost of bringing each new franchisee on board. Use a realistic cost rate for internal staff time and list external expenditure separately. Identify any assumptions that remain uncertain, such as how much additional guidance an inexperienced applicant might need.

You can also factor some of the cost of developing the franchise system into your price. Do not present this as a cost incurred directly for that particular franchisee. It is part of your pricing for access to an established concept. Avoid having your first franchisee unwittingly fund the entire development of your franchise organisation.

Then check affordability against the overall start-up budget. After the initial franchise fee, fit-out and opening stock, how much remains for working capital? A fee may cover your costs yet still place too much strain on the franchisee’s launch. Ask a financial adviser to assess both sides. Nor does paying an initial franchise fee guarantee future returns.

3. Document deliverables, payment dates and exceptions

Include the initial franchise fee and the corresponding deliverables in the franchise agreement or a clear schedule. Simply writing ‘access to the franchise system’ is not sufficiently useful in practice if the fee also covers specific start-up support.

At a minimum, specify:

• the amount and whether it includes or excludes VAT;
• which services and usage rights are included;
• which other compulsory start-up costs apply;
• when payment is due;
• what happens if the opening is delayed or does not go ahead.

Be particularly clear about that final point. An opening may be delayed by financing, premises issues or circumstances on the franchisor’s side. Agree how you will deal with work already completed and items not yet delivered. Ask a legal adviser to assess when a full or partial refund would be appropriate and which terms are legally enforceable.

Are you offering an introductory discount to your first franchisee? Record the amount, conditions and one-off nature of the discount. Do not make it conditional on waiving statutory protections.

4. Comply with the Dutch Franchise Act before requesting payment

The Dutch Franchise Act (Wet franchise), incorporated into Book 7 of the Dutch Civil Code, has been in force since 1 January 2021. Among other things, it requires franchisors to provide information about fees, investments and other financial contributions before the agreement is concluded. The initial franchise fee must therefore be clearly disclosed and explained in advance, alongside the other compulsory costs.

Once the legally required information has been provided, a standstill period of at least four weeks applies. During this period, you may not require payments or investments connected with the proposed franchise agreement. Do not ask for an advance payment towards the initial franchise fee to secure a prospective franchisee’s commitment. Calling it something else, such as a reservation fee, does not circumvent this protection.

Align your payment schedule with this statutory sequence. Give the prospective franchisee the opportunity to obtain an independent assessment of the total costs and what they will receive in return before committing.

Practical conclusion: first define a clear joining package, then calculate your price, and only then document the payment arrangements. That way, the initial franchise fee is a transparent agreement, not a surprise at launch.