Work out franchise fee roi instantly with clear inputs, formula shown and shareable results.
Franchise economics hinge on payback against the agreement term. If payback approaches half the term you have little margin for a soft trading year, and renewal fees at the end may reset the investment before you have recovered it.
Total investment
Investment = Initial franchise fee + Fit-out and working capital
Payback
Payback years = Total investment / Annual net profit
Return over term
Return % = (Annual profit x Term - Investment) / Investment x 100
Under three years is attractive; beyond four the deal depends heavily on renewal terms and the resale value of the outlet.
For accounting purposes it is usually capitalised and amortised over the agreement term. Tax treatment varies by jurisdiction.