With many appealing franchise options available, such as food cart businesses or 24-hour convenience stores, it’s not surprising if you’ve thought about investing in one. These businesses often advertise low or affordable startup costs, but they sometimes leave out “hidden” fees that can make the actual cost of owning a franchise in the Philippines much higher than expected.
If you’re a first-time investor, it’s important to understand the franchising business model before making any commitments, so you know exactly what to expect.
What is franchising?
Franchising is an investment setup where a franchisee is allowed to run a business using the brand, trademark, and marketing strategies owned by another party, called the franchisor. Most franchises follow an established system of operations, making it easier for them to sell the business concept to other people.
Through a Franchise Agreement (FA) and other legal documents, both the franchisee and franchisor agree on the scope and limits of their business relationship, with all terms legally binding.
How to start a franchise business in the Philippines
Franchising can be a cost-effective investment, especially if you prefer working with a proven business model. It can also be a valuable learning experience for first-time entrepreneurs.
However, before you invest in a franchise, you should know the most common costs involved:
- Franchise fee – A one-time payment to use the brand and business model. This fee varies by franchise and often includes benefits like seminars and training in marketing, operations, and business management.
- Royalties – Ongoing payments to the franchisor for using their trademark. This usually ranges from 5% to 7% of sales, plus a fixed fee that can be charged weekly, monthly, or quarterly.
- Marketing fee – Payment for the franchisor’s advertising campaigns. This is often 2% to 5% of sales, plus a fixed monthly rate.
- Licensing fee – A fee that gives the franchisee access to products, materials, and technology needed to run the business. Some franchises include this in royalties, while others charge it separately.
- Miscellaneous costs – Other expenses needed to start the business, such as travel for training or conventions, location-related costs like rent or construction, legal paperwork, logistics, raw materials, or equipment.
Some franchises group these costs together, making the total price seem lower than it really is.
The types of franchising businesses
Once you know the costs, you can decide which type of franchise best matches your goals:
- Product franchising – Also called trade name franchising, where a business sells or distributes a product under the franchisor’s trademark. For example, a retail store may sell different brands of soft drinks, even competing ones.
- Manufacturing franchising – Common in industries like food, clothing, and automobiles. The franchisee is allowed to produce and distribute the goods.
- Business format franchising – The franchisee gets the full rights to use and apply the franchisor’s business model, running the business independently within the agreement period. Popular examples in the Philippines include food cart franchises.
Your choice should depend on your preferences, time availability, capital, and understanding of franchise costs.
Applying for a franchise business
Starting a franchise in the Philippines can be a simple process if you meet the requirements.
Common application requirements include:
- Letter of intent
- Completed franchise application form
- Valid government-issued ID
- Resumé or CV
- Business site details and photos
Application steps:
- Submit your application documents to the franchisor.
- Attend scheduled meetings with the franchisor’s representative.
- Some franchises require a site inspection.
- If approved, you will receive a copy of the FA and contract for review.
- Once both parties agree on the terms, sign the FA to finalize the deal.
If you plan to invest in a franchise, it can also help to work with a reliable business loan provider to support your startup costs.
