Understanding the Costs of a Franchise: Initial and Ongoing Fees

If you’re considering charting a new course as a franchise owner, understanding the financial commitments involved is a top priority for establishing a successful venture. The Tailored Closet, a leader in the home organization industry, offers valuable insights into the costs of a franchise, including the initial and ongoing expenses, to ensure you’re fully prepared for the investment ahead.

Opening a Franchise Location: What Does It Take?

Opening a franchise location involves several steps, each with its associated costs. The initial investment for The Tailored Closet is $155,220 to $268,675. Here are some of the things your startup costs should include:

• Franchise fee: An upfront fee paid to the franchisor for the rights to use the franchise brand, system, and resources. The franchise fee for The Tailored Closet is $19,950.
• Real estate costs: Expenses for leasing or purchasing a location for the franchise. The Tailored Closet can be operated from your home much of the time, which helps trim overhead costs. You will need a warehouse or storage facility to house supplies, and we charge a $55,000 territory fee to secure your location. Each of our protected territories has a minimum of 100,000 households.
• Equipment and supplies: Costs for purchasing necessary equipment, furniture, and initial supplies to operate the franchise. Our franchisees need a trailer and forklift for transporting home storage solutions. Many of our owners opt to lease the equipment to cut down on costs.
• Inventory: Initial stock or inventory required to start the business, relevant mostly for retail and product-based franchises. The Tailored Closet requires minimal inventory. We rely on 3D software to highlight our products for customers.
• Training fees: Some franchisors charge for initial training programs that cover operations, management, and other aspects of running the franchise. Our training program includes more than 100 hours of virtual and in-person learning to ensure franchise owners have the knowledge they need to get started. You’ll also receive extended franchise business support, ongoing training opportunities, and technology support throughout the life of your business.
• Legal and accounting fees: Costs for professional services like legal counsel for reviewing franchise agreements and accounting services for financial setup.
• Insurance: Necessary insurance coverage, which may include general liability, property, workers' compensation, and other types of business insurance.
• Marketing and advertising fees: Initial marketing costs and ongoing advertising fees, which may include contributions to a national or regional marketing fund. The Tailored Closet requires our franchisees to pay 1% of monthly gross revenue to a national advertising fund to help promote the brand.
• Technology and software: Costs for purchasing or licensing required technology and software systems, such as point of sale (POS) systems, management software, and customer relationship management (CRM) tools.

Ongoing Fees: Keeping the Business Running

Once your franchise is operational, you'll encounter ongoing fees. These typically include royalty fees, which are a percentage of your gross sales paid to the franchisor. There might also be marketing fees contributing to national advertising efforts. Additionally, operational expenses like payroll, utilities, and inventory replenishment are part of the ongoing costs of a franchise.

Financial Qualification: Are You Ready?

Determining if you're financially ready for a franchise involves more than just having the initial capital. Most franchisors require proof of a certain level of liquid assets and net worth to ensure you can support the business, especially in its early stages. It's about having enough financial cushion to sustain the business until it becomes profitable. In addition to the initial franchise investment, we require our franchisees to have a net worth of $350,000 and at least $111,220 in cash.

The timeline for seeing a return on your investment (ROI) varies. You can get insights by conducting validation with existing franchise owners. The franchise disclosure document (FDD) may also provide a look at some of the top-performing locations in the system.

Learn More About The Tailored Closet

If you're passionate about business ownership, The Tailored Closet is a proven model in a high-demand industry. The home organization market is on track to hit $15.9 billion by 2030, according to Research and Markets. We offer a wide range of products, from custom closets to garage storage solutions and we cater to homeowners as well as local businesses, schools, and property management companies to increase potential profitability.

Inquire now to learn more about partnering with The Tailored Closet to launch a home storage solutions business.