Earnings Claims of Top Franchises Revealed

Earnings Claims of Top Franchises Revealed

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Considering a KFC Franchise? Don’t Overlook These 16 Important Franchise Fees

by Franchise Chatter on May 13, 2017

in Chicken Franchises, Franchise Fees

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If you are considering a KFC franchise, don’t get blindsided by these 16 important franchise fees (from the initial franchise fee, to the royalty fee, to 14 other fees found in Items 5 and 6 of KFC’s 2017 FDD).

1.  Initial Franchise Fee:  $45,000

  • KFC charges an initial franchise fee of $45,000. The initial franchise fee is in consideration of KFC providing you the right to develop an Outlet.
  • You must pay the initial franchise fee in two parts: (i) the Deposit Fee and (ii) the Option Fee.
  • You will pay KFC $20,000 upon signing the Deposit Agreement (the “Deposit Fee”). If KFC does not approve the proposed site and terminates the Deposit Agreement, you will be refunded the Deposit Fee less any applicable Impact Study Fees (as defined below), provided you execute a general release agreement on a form KFC approves.
  • KFC’s Impact Study guidelines allow certain Existing Franchisees to request an Impact Study on Existing Franchisees’ sites. KFC charges approximately $6,000 to conduct the Impact Study (the “Impact Study Fee”), and if the proposed site is denied as a result of the Impact Study, KFC may subtract the Impact Study Fee from your $20,000 deposit.
  • If you are charged the Impact Study Fee, it is not refundable under any circumstances and is payable upon signing the Deposit Agreement.
  • You will pay KFC $25,000 upon signing the Option Agreement (the “Option Fee”) in consideration of KFC granting you the Option to build the Outlet.
  • The Option Fee is non-refundable; however, if the Option Agreement terminates as result of a bona fide zoning or building restriction beyond your control, KFC will refund $22,500 of the Option Fee upon your execution of a general release in the form required by KFC.

2.  Application and Background Check:  $300 to $500 per person

  • If you are a new franchisee, you must pay an application and background check fee ranging from $300 to $500 per person upon submitting an application to become a new KFC franchisee. This fee is non-refundable.

3.  Training Fee:  $3,000

  • In addition, you are required to pay a training fee of $3,000. KFC will charge you this training fee if you complete the restaurant portion of your initial training in one of the Company-Owned Outlets.
  • If you do not conduct any training at a Company-Owned Outlet, you will pay third parties for KFC’s training program. The fee you pay third parties varies depending on the third parties’ cost to train you.
  • In either case, the training fee will be payable prior to beginning KFC’s initial training program and is not refundable under any circumstance.

4.  Royalty:  4% to 5% of Gross Revenue or a minimum of $825, whichever is greater, per month (minimum fee subject to adjustment based upon the Consumer Price Index)

  • Due Date:  Payable monthly by the 20th day of the next month.

5.  National Co-op:  4.5% of Gross Revenue

  • Due Date:  Payable monthly by the 20th day of the next month.
  • The Franchise Agreement states that KFC will not require you to pay more than 5% of Gross Revenue for advertising purposes.

6.  Renewal, if applicable:  $6,750 (subject to adjustment based upon the Consumer Price Index)

  • Due Date:  As incurred.
  • Payment of the renewal fee is one of several requirements that you must fulfill as a condition of renewal if you sign the Franchise Agreement.

7.  Transfer:  $6,750 for first Outlet and $3,375 for each additional Outlet in the same transaction

  • Due Date:  Upon your execution of the Transfer Agreement.
  • The transfer fee is subject to adjustment based upon the Consumer Price Index.

8.  Background Check (Transfers):  $300 to $500 per person

  • Due Date:  As incurred.
  • You must pay for a background check for any potential transfer candidate, including if you add a business partner or owner to your existing franchise.

9.  Audit:  entire cost of audit, including expenses of auditing personnel

  • Due Date:  Immediately upon determination of amount.
  • Payable only if audit reveals a deficiency of at least 2% of the amount of royalties actually paid.

10.  Additional/Refresh Training:  $3,000

  • Due Date:  As incurred.
  • Payable if KFC determines that you or any of your employees need additional training, and you or they complete that training at a Company-Owned Outlet.

11.  Costs, Expenses, and Attorneys’ Fees:  will vary

  • Due Date:  After judgment is entered in KFC’s favor.
  • KFC is entitled to collect these costs, expenses, and fees if it wins a lawsuit it brings against you based on the Franchise Agreement (if you win the case, you are entitled to these costs, expenses, and fees).

12.  Indemnification:  will vary

  • Due Date:  As incurred.
  • You are responsible for all matters arising out of the operation of the Outlet, including personal injury and property damages.

13.  Late Royalty Payments:  1.5% per month

  • Due Date:  Upon demand.
  • Payment to encourage prompt payment of royalties and cover expenses involved in processing late payments.

14.  Restaurant Operations Compliance Check (“ROCC”) – comprised of two categories: (1) Food Safety Compliance Check (“FSCC”) and (2) Brand Standards Compliance Check (“BSCC”) reevaluation:  up to $287.50 per reevaluation

  • Due Date:  As incurred.
  • KFC will pay for ROCC evaluation (which includes both FSCC and BSCC) 3 times per year.
  • If a BSCC evaluation results in an underperforming (failure), then a FSCC and a BSCC re-evaluation will be required and will be at your expense.
  • If a FSCC assessment results in an underperforming (failure), then only a FSCC (and not a BSCC) re-evaluation will be required and will be at your expense.

15.  Support Services and Software Maintenance for KFC’s MERIT System:  $168.30 per unit per month

  • Due Date:  Payable monthly.
  • Includes help desk and data management support services, account management, and software maintenance.
  • If you do not sign a new MERIT Agreement, you may be subject to a higher monthly fee.

16.  One System Fund Fee:  $1,065 per Outlet (onetime enrollment fee); then $180 per Outlet per month (plus applicable tax and shipping) (reoccurring payments)

  • Due Date:  Upon enrollment for the one-time enrollment fee; then reoccurring payments payable monthly.
  • Includes hardware to display merchandising materials and menu panels and other point of sales advertising materials which support national promotions.
  • This amount is paid to the National Co-op.

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