Construction Costs for Franchisees

Many industries have franchises – probably more than you think – from retail stores to auto maintenance shops to restaurants to hotels. We see them every day – brand name stores that proliferate our cities and small towns. But what are the costs of franchises and what does construction have to do with them?

Perhaps the first upfront costs for franchisees are buy-in costs. Franchises have to approve franchisees before buy-in based on their net worth or liquid funds. There are also upfront professional fees – such as those involving lawyers and accountants.

Construction Costs for FranchiseesBut soon on the list are the important build out construction costs. “Build out” construction occurs when the contractor literally “builds out” the client’s construction needs. Of course in a franchise scenario, that means to build out the space to the franchise store specs. Franchise stores or offices start with a flagship location built out to corporate brand approved specifications. The additional locations can then be “rolled out” to fit those flagship specs.

Upfront promotional costs are also important – the new franchise location has to be promoted to gain awareness and business growth. Some of the broad advertising and promotion is executed by the franchise corporate itself (and is paid for by franchisee ongoing costs). But local awareness must be built up – and those costs are paid by the franchisee.

Ongoing costs include loan interest, salaries, rent, supplies, maintenance, utilities and uniforms. Of course there are the franchise fees and construction upkeep (which may be covered or at least shared by the property owner).

Just as it’s important to build out the space to fit franchise corporate specs upfront, branding itself is not a one-time activity and rebranding is important – to marketing promotion as well as space construction. Every few years a company and its flagship location can be rebranded to fit the times, trends and consumer desires. After the franchise’s flagship location is rebranded, franchisees can have their locations rebranded in construction to fit the franchise specs. Rebranding can effect the wall colors and even locations, flooring, lighting fixtures, industrial equipment, shelving and furniture as well as other construction elements.

Although the costs for a franchisee can be high, an advantage to buying a franchise is that franchisees can have a clear picture (thanks to the franchisor and other franchisees) what fees and cost totals will be incurred. Whereas a pure startup business requires its own branding and business recognition and growth from nothing – making costs much more difficult to estimate.

Want more? Read about Buildrite Construction’s roll-out services.