Based on analysis of 192 franchises in FranchiseStack's database, due diligence must account for extreme variance in capital requirements and fee structures. Initial investments range from as low as $3,000 for service-based models like eXp Realty to over $4.7 million for high-infrastructure brands like Burger King. Investors should evaluate the royalty burden, which fluctuates from 0% in brands like RE/MAX and Ace Hardware to as high as 43% in retail models like 7-Eleven, to ensure the business model aligns with long-term cash flow expectations.
The Franchise Disclosure Document (FDD) is the most critical, specifically Item 7 (Initial Investment) and Item 19 (Financial Performance Representations).
Royalties are typically a percentage of gross sales; high royalties like H&R Block's 30% or 7-Eleven's 43% significantly increase the break-even point compared to 0% royalty models like RE/MAX.
Not necessarily. While brands like eXp Realty start at $3K, higher investment brands like The UPS Store ($178K-$403K) provide physical infrastructure and established brand equity that low-cost models may lack.
Item 20 of the FDD lists current and former owners; contacting them allows you to verify the franchisor's support quality and actual unit-level earnings potential.
Beyond the initial fee, look for marketing fund contributions (often 1-4%), technology fees, and renewal fees which can impact your net margins.
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