Auto Franchise Fees and Costs

Auto Franchise Fees and Costs

Auto franchises come in all shapes and sizes. This is reflected in the variation in fees and capital required to start an auto franchise. Based on the sample in this report the typical franchise fee for a single unit franchise is $25,000.  A higher franchise fee may reflect a higher level of support from the franchisor or a business model with particularly high financial returns.  With a given franchise system there may also be a variation in the franchise fee depending on the size of territory.

The total initial investment required to start a franchise covers the initial franchise fee, leasehold improvements, fixtures and equipment, signs, opening inventory, training expenses, insurance fees etc. There is a big range in start up capital requirements.  For example, the total estimated initial investment required for a Dr Vinyl mobile appearance repair and reconditioning franchise is $55k while the total estimated initial investment for a Big O Tire retail tire and under-car service center franchise ranges from $225,800 to $543,300. 

The table below provides an overview of the estimated initial investment required to open a single unit of 30 auto franchises as well as the ongoing sales royalties payable to each franchisor.  It also contains a detailed profile of each franchise which presents these costs in more detail.  The profiles are extracted from the Uniform Franchise Offering Circulars (UFOC) or Franchise Disclosure Documents (FDD) of the 30 franchisors.  
 

Table 2: Auto Franchise Profiles

Other ongoing fees and costs
 

The typical recurring fees and payments for auto franchisees based on the report sample are outlined in the table below. Royalties vary according to the nature and size of the business, the level of ongoing support provided by the franchisor and expected financial returns. The average royalty charged by auto franchises is 5% of gross sales with a range of 2% - 30% of gross sales. Other franchisors charge a fixed monthly fee.

The typical advertising fee charged by auto franchisors is 2% of gross sales with some charging a flat fee. As with royalty fees there is wide variation among franchises with some franchises charging no advertising fee and others charging up to 5% of gross sales.

Most franchise terms are 5 -10 years. Many franchisors charge a renewal fee to extend the franchise license. The typical renewal fee is between $2,500 -$5,000 or between 10%-50% of the initial license fee. Should the franchisee decide to sell the franchise the franchisor will generally charge a transfer fee to cover the costs of training and developing a new franchisee. The transfer fee typically applying to auto franchises in this report is $5,500

The late charges and interest are fees that are paid if the franchisee is overdue in paying royalties or other monies owed.  The fee for auto franchises is generally 1.5% monthly on amount owed.

Table 3: Typical ongoing fees and payments

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