Q: What advice do you have for negotiating the royalty fee (i.e. 6%) for the purchase of multiple franchise units? Are there rules of thumb for lowering the royalty fee when a number of units are purchased?
A: Unfortunately, there are no "rules of thumb" when negotiating with a franchisor; however, you absolutely want to leverage the multi-location purchase in your favor. It is not unreasonable to at least have a sliding scale so that the more revenue generated, the lower the franchise fee. Have you asked them directly what they are prepared to do? This is definitely the best tact to employ. Failing their willingness to negotiate openly with you, here's what to do:
If there are other multi-unit operators then call them. Get a bit of a feel for what they may suggest, without necessarily asking it directly. Keep in mind that if there are other multi-unit owners, the franchisor will do their utmost to keep your deal consistent with theirs in order to avoid a revolt.
Propose a reduced rate (i.e. 3 - 4 %) for all six locations, and see how they respond. The problem is that they may discount you completely as not being serious and avoid a counter-proposal. But, franchisors have one agenda and that is to sell their banners. So I would highly doubt if they're not willing to discuss this unless they own one of the most highly sought franchises.
In any business purchase situation, be it a franchise or not, always remember: EVERYTHING is negotiable!
|Richard Parker is the author of: How To Buy A Good Business At A Great Price, the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation - The Business Buyer Resource Center.|