{"id":29,"date":"2009-07-30T20:55:00","date_gmt":"2009-07-30T20:55:00","guid":{"rendered":"http:\/\/thefranchisemaker.com\/blog\/the-differences-between-franchise-fee-and-total-investment"},"modified":"2026-10-20T18:43:51","modified_gmt":"2026-10-20T18:43:51","slug":"the-differences-between-franchise-fee-and-total-investment","status":"publish","type":"post","link":"https:\/\/www.thefranchisemaker.com\/learningcenter\/the-differences-between-franchise-fee-and-total-investment\/","title":{"rendered":"The Differences Between Franchise Fee and Total Investment"},"content":{"rendered":"

Oftentimes, when researching franchising, it is easy to get confused by the terms “franchise fee” and “total investment”. It is not uncommon for there to be a misunderstanding between the “franchise fee” and “total investment”.\u00a0 So let’s clear it up.<\/span><\/p>\n

And while we are at it, let’s also talk about the term “royalties”.\u00a0\u00a0\u00a0<\/span><\/p>\n

The Franchise Fee Definition:<\/span><\/h2>\n

The franchise fee is one of the most well-known term and is a one-time fee that someone pays to become part of your franchise system. It is NOT just an arbitrary fee intended to generate profit. The franchise fee is payment, in part, for expenses incurred by you (the franchisor) for all onboarding, training, assistance and guidance you provide to a new franchisee. In other words, this is a fee to reimburse you for your actual costs associated with bringing someone new into your system while helping them open their business.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

For example, the franchise fee reimburses you for your time while on-boarding the franchisee, the training program you and your team will provide, website you provide to franchisees, advertising and marketing materials given to your franchisee to help kick off their business, access to proprietary software and in some instances a small inventory of start-up supplies. The franchise fee also covers your legal expenses, accounting, background checks and other professional fees you incur when brining on a new franchisee (learn more about\u00a0the franchise fee)<\/a>.<\/span><\/p>\n

Franchise Total\u00a0 Investment Definition: <\/span><\/h2>\n

The total investment is substantially different from the franchise fee. The total investment is a dollar amount (often expressed as a range) that a franchisee should expect to spend in total<\/em>\u00a0in order to start their business and immediately begin to generate revenue.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

In the Franchise Disclosure Document<\/a> (FDD) you are required to provide your prospective franchisee applicant with an Estimated Initial Total Investment<\/em> that a person can expect to spend OR has to spend in order to open for business. \u00a0This total investment includes <\/em>the franchise fee as described above, along with other expected expenses such as: <\/span><\/p>\n