How Much Does Each Franchise Tier Cost?

Owning a franchise can be an exhilarating experience and a profitable venture. After all, which entrepreneur wouldn’t love the chance to partake in an already existing business structure with most of the marketing and advertising done for them? However, it’s not all roses and sunshine. Upfront investment costs can be quite exorbitant. To reap the rewards of franchising, you need a significant financial commitment upfront. For example, the Pirtek Franchise is one entity that has proven to be profitable year after year in its franchising activities. However, it’s not your average business where a few thousand dollars will get you a buy-in. You’ll need significant funds to meet the franchisee requirements, among other conditions. Of course, several factors determine the investment costs. One crucial factor is the tier system.

Franchise Tier System

The definition of a franchise business model revolves around an individual or entity, usually an established business, selling limited rights to an individual or entity to use its brand name when doing business while adhering to specific conditions. The one selling the rights is the franchisor, while the party buying the rights is the franchisee. This usually involves the franchisee meeting certain requirements of the franchisor’s choosing. Chief among such requirements is the financial commitment, which usually ranges in the tens of thousands of dollars in upfront costs. However, some established franchise businesses realize that having a “one-sized” criteria for all franchisees precludes a lot of potential investors, many of whom may have what it takes to be part of a franchise but may not have the financial means to commit. 

Enter the franchise tier system.

As the name suggests, it is a system that has tiers—levels of financial commitment– to which potential franchisees can aspire to based on their resources.

In a franchise tier system, the franchisor has different packages from which a franchisee can choose. Usually, tier one is the top package and the most expensive. Tier two is less expensive than tier one but lacks some of the privileges associated with tier one.

Examples of franchise tier systems include:

i)Pirtek Franchise: This hydraulic hose repair and maintenance company offers franchise opportunities to individuals willing to venture into this niche. They have tier one and tier two franchise business opportunities.

Tier one franchisees are expected to have a dollar amount of at least $750 000. Such franchisees enjoy all the benefits of being associated with a franchise. These include being provided with support while choosing the location of your establishment, a well-equipped and fully functioning mobile vehicle for being on the move when responding to client requests, and a full staff, among others.

Tier two franchisees should have a minimum of $250 000 to be accepted. While its benefits are fewer than franchisees in tier one, they still get some nice perks like having a mobile business.

ii) Restaurant Franchises: Usually, restaurant franchises are difficult to set up. In addition to the finances needed, the recipe for the franchisor has to be exact. This is because customers will have gotten used to what the franchisor serves. Any slight deviations can cause customers to abandon that restaurant. A well-established restaurant might offer a tier-one franchise at $300 000. This includes all the support and tools a franchisee needs to establish and build the business. Tier two could go for $125 000. This is usually for a mobile food truck. A tier three, which would be a food cart, can cost around $65 000 to set up. The lower a franchisee moves down the tier order, the fewer perks and support they receive from the franchisor.

The Right Investment

Irrespective of your financial means, you want to be part of a franchise that offers a decent chance at growth and profitability. This should be secondary to whether or not you like the industry in general and the niche in particular. It isn’t easy to prosper in a franchise whose services or products you don’t believe in. Additionally, the franchisor has to be willing and able to support you enough until your establishment can become self-reliant.

Of course, diving into franchising should never be done on a whim. To know if it’s right for you, you need to research the niche in general and the entity franchisor in particular. Part of this research should involve a profitability assessment. You want a franchise that can relatively quickly provide a decent return on investment.