Ever heard of the brand “Subway”? They sell sandwiches. You can set-up a subway like shop yourself. Have similar kind of sauces and raw materials and sell similar menu at similar prices. Maybe you can set up shop next to a ‘Subway’ outlet and match their marketing spends. This set-up will cost you hardly 18-20 lakhs. They charge you approx. 70 lakhs for the set-up.

Still, they have the highest number of branches in the World. Every 18 minutes or so, a Subway opens somewhere in the World. Why do you pay so much of Franchise fee to get a Subway Franchise Outlet? Simple Phrase – “Ability to Sell”. They know how to generate wealth and know this much better than any other local player. So, they charge a premium. As an investor, if you want to be a part of this “Low-Risk” business model (Because, with experience, they have done all the required risk mitigation), you have to pay a premium.

There is no other reason. There is hardly any secret recipe. No secret ingredients these days. Its just the power of Brand. That’s the reason you can’t match their sales and profit figures even after making better sandwiches and selling at half the prices. That’s why you pay franchise fee and continue paying royalty. Because they know how to sell. You are investing in their proven business model. Ask the same question to your Brand Owner if you are considering a franchise.

There are no right or wrong answers to judge from. The answers rather reflect their understanding of Market Dynamics, the robustness of their business model and the extent of risk mitigation planned for the business. The answers reflect their maturity in Business. If you are convinced with the answers, then take the next step. After all, you would want to partner with a Brand which has a potential to become next “Subway” isn’t it?

(P.S. Subway is a registered Trademark and its usage is intended for academic discussions only)