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Franchising Fees: What You Need To Know and Watch Out For

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The Philippines has been recognized as the Franchising Hub of Asia. It means that franchising as a business model is well accepted in this country. In fact, it is one of the top choices of any enterprising Filipino with money to spare and who wants to be conservative with his venture.

As with any business, franchising has its share of traps and this article discusses that part which involves money.

Fees and Charges Associated with a Franchise Operation

1. Franchise Fee

One of the first things people ask when they consider going into a franchise business is “How much is the Franchise Fee?”

Indeed, it is one most expensive items you have to deal with when buying a franchise business and you will understand why later. Depending on how you look at it, this is money that you basically just throw out the window and into somebody else’s house.

Fees and Charges Assosiated with a Franchise Operation

Fees and Charges in operating a franchise business must be thoroughly understood before embarking into the deal.


Franchise Fee is associated with:

  • The use of the company name and logo. This is very cool. Most of the time, clients and customers will never know that the business is run by the jerk-next-door.
  • The Business System. This is the most valuable assets of a business and one of the most difficult to perfect. This is one area also in which buying a successful franchise business is worthy compared to doing it from scratch. Having a proven business system eliminates a lot of guess work and mistakes that go with running a business. A successful and highly experienced franchisor can tell you the things that work and those that don’t.
  • Training and Support. One of the nice things about joining a franchise is the support system the company offers. A good company should take you seriously as a partner in the business. That is, they should have a stake in your success.

Tips on Franchise Fee: It’s very hard to tell if the Franchisor’s Franchise Fee is fair or not. You have to check what its competitors are offering and make sure that you compare apples to apples. Never, ever buy a franchise just because is it something you can afford. There are more things to consider than just the franchise fee.

( See also: Things to consider before buying a franchise. )

2. Royalty Fee

This is one thing you really have to think about. Royalty fees come in various forms, such as the following.

  • Percentage of gross sales. That is, they get a piece of the pie even before the government gets theirs. Naturally, you — as the operator of the business — get the last piece. The worst royal fee I’ve seen so far in the Philippines is one which is based on the gross sales + VAT.
  • Percentage of purchase. This one is the opposite of the royalty fee mentioned previously. Instead of taking it from the items you sold, they take it from the items you buy from them. Technically, this should be lower compared to the other type of royalty fee.
  • Fixed recurring fee. Which is not really a royalty fee but more like a rental or retainer’s fee.

Tips on Royalty Fee: Take a good hard look at this item before you consider buying a particular franchise. This is one area that causes a lot of franchisee regrets. Franchising is supposed to foster a win-win partnership, right?

3. Marketing / Advertising Fee

This part is a real bomber because it appears to be legitimate. Like the royalty fee above, marketing fee ( or sometimes named advertising fee) is charged on the franchisee on a periodic basis, usually monthly. This is supposed to help your business by driving clients and customers to your doors, right?

But… there are franchisors that collect marketing fee who never run any single ad, ever!

Tip On Marketing Fee: Have you personally seen for yourself a single ad or marketing campaign by that particular franchisor? How often do they run that campaign? Will it benefit your own franchise operation?

4. Renewal Fee

A Franchise Agreement usually has a set time frame and beyond that you need to renew it with the company. The following should be the ideal scenarios when it comes time to renew:

  • You should have recovered your expenses and gained from the past years of operating the franchise business.
  • The renewal fee should be lower than the original franchise fee.

Tip on Renewal Fee: Everything else being equal, you should select a franchise that offers the longest renewal term and with the lowest renewal fee.

( Recommended Reading: Franchise Opportunities From Oil Companies in the Philippines. )

Do the Math

Doing the numbers before embarking on a franchise deal is one of the smartest things you can do to your planned business venture.

The concept of franchising may be old, but its adoption here in the Philippines is relatively new. As such, there are a lot of unscrupulous businesses disguised as legitimate franchises and who are only after the money of unsuspecting clients who don’t know how to evaluate a business opportunity. Here at NegosyoBuilder.com, we want you to steer clear of that situation.

In the next couple of articles, we will be featuring business and franchise opportunities that are available in the Philippines. As usual, we’ll guide you with some tips and point out the traps to avoid.

Fuel Your Business: Opportunities From Independent Oil Companies in the Philippines

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Is this an exciting time to be in the oil and fuel business? Petroleum, indeed, is an essential commodity that does not depend on the conditions of the economy; that is, we use and consume oil whether the economy is up or down.

In the previous article, we’ve shown you the business opportunities available from the country’s biggest oil players, known as the Big 3. Here we’ll explore the alternative opportunities offered by the independent oil companies or the so-called small players.

Anyone who is serious about becoming a distributor or retailer of petroleum products should consider the various opportunities from all parties, and weigh the advantages and disadvantages before finally embarking on this business venture.

Option #1: Seaoil Franchise

Seaoil is considered as the leader among independent oil companies in the Philippines. In 1980, it opened its first petrol depot facility in Mandaluyong serving local as well as multi-national companies. Frachising a Seaoil business means you are backed by the company’s more than 30 years of experience in the oil business.

Seaoil Franchise Investment:

  • Franchise Fee : P 500,000.00
  • Estimated Capital: P 3,000,000.00

The company also offers a customized franchise package. You can choose to franchise an existing station or start a new one. The minimum recommend lot area for the gas station is 800 sq m.

For details, please visit the Seaoil website at http://www.seaoil.com.ph.

Option #2: Phoenix Petroleum Franchise

The Phoenix Petroleum has its humble beginning as a family business in Davao in the year 2002. Originally it carried the name Davao Oil Terminal Services Corporation and in 2006 changed its name to Phoenix Petroleum Philippines, Inc. A year later, it became the first independent oil company to be listed in the Philippine Stock Exchange.

Phoenix offers franchising opportunity for those who want to become retailers of petroleum products and carry their brand. Phoenix requires from the franchisee a minimum of 800 sqm lot with at least 25 meter frontage for the site of a gas station. Aside from the usual business support common with other franchisors, what’s nice about the franchise concept of Phoenix is its flexibility. That means you can attach other businesses with your petroleum franchise provided it passed the approval of Phoenix.

The estimated capital outlay for a Phoenix station is 3M. It already includes the franchise fee, construction cost, equipment deposits and initial stock.

To know more about the company and the franchise opportunity they are offering, please visit their website at phoenixphilippines.com.

Option #3: Unioil Franchise

The company made its presence felt in 1992 when it opened its first gas station along the Ninoy Aquino Avenue in Parañaque. In 2003, it opened its door in Mindanao when they set up their first gas station outside of Manila.

Interested Unioil petroleum distributors should prepare somewhere from P 500,000 to P 1 million in capital. The company boasts of its estimated return on capital in as fast as one and a half to two years.

To know more about Unioil and their business opportunities, visit them at http://www.unioil.com.

Option #4: Eastern Petroleum Franchise

Finally, one other oil company that we want you to take notice of is the Eastern Petroleum. It was founded in 1996 by Fernando L. Martinez. The following year, it opened its first petrol station in Pasig City. In 2004, it already reached the Mindanao area by having their gas stations in Gen San and Davao.

Prospective franchisees can avail one of the following setups with their respective estimate investment requirements:

  • Basic Station (1 or 2 Islands and 2 pumps) — Investment starts at P2 Million
  • Regular Station (2 Islands and 3 to 4 pumps) — Investment starts at P5 Million
  • Large Station (3 Islands and at least 5 pumps) — Investment starts at P8 Million

Eastern Petroleum is very strict when selecting their sites. At bare minimum, your site should be at least 400 sqm in area with a frontage of 25 meters. Site must be in rectangular, square or L-shape. Furthermore, it must be at least 10 meters away from any creek.

Get to know more about the company by visiting their website at http://www.easternpetroleum.com.ph.

How To Start An Oil Business in the Philippines (Opportunities from the Big 3)

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As a developing country, the Philippines is known as a major consumer of energy-related products such as gasoline and diesel and yet we only produce a fraction of our own, which is really not enough for domestic consumption. That is why we rely so much on imported petroleum products to help us power our growing industries and population. And like food, fuel is one commodity that man (his machines, to be precise) can’t live without — or so it seems.

For a long period of the Oil Business in the Philippines was dominated (some say monopolized) by companies collectively known as the Big 3 — Caltex, Petron and The Pilipinas Shell. Thanks to the Oil Deregulation Law ( Republic Act No. 8479 of 1998 ), some smaller and independent players have emerged bringing benefits to the consumers, serving farther locations in the countryside and more opportunities for those who want to be in business.

Do you want to know how you can take advantage of the various business opportunities in our local Fuel Industry? You have come to the right place. More specifically, we’ll show you how you can become a distributor of well-known brands of the country’s three biggest oil companies.

What’s In Store For You, The Businessman

For smaller businesses, running their own petroleum business basically means becoming a franchisee of a known company or becoming a retailer. Either way, you will be carrying the trade name of the mother company, you will be sourcing majority of the products from them and you will have their support, too. Different companies will also have their respective business opportunities which you can choose from, but basically they fall under the following categories:

  • Gas Station (includes gasoline, diesel, motor oils, lubes and lubricants, etc )
  • Gas Station plus Convenience Store
  • Gas Station plus Automotive Shop (plus, maybe, a car wash)

Obviously, petroleum is your main product.

Opportunity #1: A Caltex Gas Station

The Caltex brand is backed by Chevron Corporation, which one of the global leaders in the energy industry.

For a minimum investment of P 5M for facilities and equipment, you can become an oil retailer of Caltex. Of course, you will need to set aside an amount for your initial operations.

Running a your own Caltex Gas Station as a retailer of Caltex Products means you are in partnership with a trusted and highly recognized brand.

Here are some of the advantages of being a Caltex Retailer:

  • Caltex will appoint a Business Consultant who will help and support your venture.
  • Chevron Engineers will be available for consultation of your initial site design and construction
  • Trainings are available to help you enhance your business skills as a retailer.
  • Marketing and other support services.
  • Business Signages will be provided by the company.

How To Become A Caltex Retailer

You need to submit an application with your site and the company will contact your for their initial evaluation.

Here are the steps to take:

How To Become A Caltex Retailer

For more information, visit their website at http://www.caltexforinvestors.com.

Opportunity #2: A Petron Service Station

The Petron Corporation is the country’s big daddy in the energy sector. It supplies nearly 40% of our nationwide fuel consumption. And it also owns an oil refinery plant which processes crude oil and turn it into various petroleum products which can be distributed to the service stations and used by the end consumers.

On the business side, Petron offers the following opportunities that you can tap:

  • Run a gas station.
  • Distribute LPG. In some cases you can also carry this product line in your gas station.
  • Own an Automotive Service Shop under the Petron Car Care Center brand.

Let’s focus on the first one.

For those interested in distributing Petron products, there are basically three types of Petron Gas Service Stations available:

  1. Company-Owned Service Station
  2. Dealer-Owned Service Station
  3. Micro Filling Stations aka Petron Bulilit Station (perfect for micro-entrepreneurs)

Petron Bulilit Gas Station

A Petron Bulilit Gas Station. This one is perfect for micro-entrepreneurs in the Philippines. It is best to set this up in the under-served areas in the countryside.

They are all basically the same, but they differ on the size of the station, the investment requirements and the number of pumps (maximum of three pumps for the Petron Bulilit Station).

The capital requirement ranges from P 1M to P 9M depending on the size of the service station. To become a dealer, you have to undergo a three-phase selection process which consists of: Screening, then Training, and finally Project Implementation Phase.

For more information, please visit the Petron Corporation’s website at petron.com.

Opportunity #3: Pilipinas Shell Retailer (A Franchise Business)

Pilipinas Shell Petroleum Corporation “refines, blends, transports and sells a wide range of high quality fuels, lubricants, bitumen and other specialty oil-based products.”

As a Shell Retailer, you will be operating under the trade name of Shell. This gives you the opportunity to use the company’s logos, trademarks, signages and other Shell-related symbols that are easily recognized worldwide.

Well, actually Shell offers a franchise opportunity with a twist: there is no franchise fee. However, just like any franchise operation, you will have to pay a royalty fee and retailer’s fee every month. The initial investment at the time of this writing ranges from P 3M to P 5M and covers the fuel supplies, station equipment and other things related to the operation of the business.

(See also: 5 Factors to consider when buying a franchise.)

How about the convenience store and other business opportunities from Shell?

Good question. If you happen to notice, some Shell Petrol Stations have a Convenience Store (under the Select brand), or Automotive Service Shop. As a Shell Station Franchisees you will have to apply for those separately.

Furthermore, Pilipinas Shell is proud to declare that dealers can expect an average Return On Investment of 30% to 40% with an average pay back period of 2 to 3 years.

For more details on the Shell Franchise Opportunity, please visit their website at www.shell.com.ph.

Other Business Opportunities From Small Players

Up next, we’ll be showing you the other dealership and franchise opportunities from smaller oil companies like SeaOil, Phoenix Petroleum, FlyingV. You may be amazed to discover that it really doesn’t take that much capital to put up a gas station carrying the brands, products and services from these companies.

Buying A Franchise Business? Look Before You Leap

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In a nutshell, franchising is a business model that allows the franchisee to sell the products or services of the franchisor (the parent company). It is an easy doorway to entrepreneurship for anyone who wants to take a short-cut and minimize the risks involved in creating and running a business from scratch.

The following are some of the attractive aspects of operating a franchise business:

  • The use of company trademark, trade name or any other similar company identification.
  • Training Programs
  • Marketing and Advertising Assistance

Sounds good enough for you?

Well, as with everything else in business, franchising is not without its problems. There are a lot of jerks in the world of franchising. You may have already heard of “success stories” of franchise companies that started small and have grown by leaps and bounds in a matter of two years! On the surface, that’s indeed very impressive especially if the story is masterfully crafted by the media whose main job is to attract as much attention from a lot of viewers as possible. But, did you ever wonder where the money came from? Was it a result of offering a set profitable products and services? Or, was the “success money” extracted from franchise fees? As a potential franchisee, it’s important that you have to know the real score. Otherwise, you might just become their rich source of cash.

The rest of the article provides practical tips you can use before you buy a franchise business.

1. Check The Company’s Background and Track Record

Tips In Buying A Franchise

Buying A Franchise?

First, it would be good if like the company, its management and the way they conduct their business operations. Ideally, you should have patronized their products and services for a long time already.

Avoid buying franchise from a company that is relatively new in the market — less than five years. You may seem to like their products and the services they offer, but you can’t tell if they are really profitable or they are losing if they just launched their business.

There are only two reasons why businesses survive: (a) they are profitable, or (b) the owners have deep pockets. Common sense dictates that the former is your best bet. You have to be convinced of their track record of success in the marketplace. Otherwise, you might just become their cash cow.

2. Know The Money Involved

At the very least, you need to determine the following:

  • Franchise Fee / Renewal Fee
  • Estimated Capital Outlay
  • Royalty Fees
  • Advertising Fees
  • Estimated Operating Expenses

Beware of the hidden costs and fees that are not clearly spelled out such as the Renewal Fee. You can never find such information from the company’s marketing and promotional materials. You have to be creative in figuring this one out.

Furthermore, there is no point in buying a franchise you can’t afford. And speaking of affordability, you have to check if financing is available. Can you obtain a business loan? Will they extend help in getting a loan?

(See also: How To Fund A Start-up.)

3. Look At Their Earnings Claim

Is it too good to be true? Do you know the average industry standard? If you can have a copy of their audited Financial Statements, that’s good. It’s one way to verify their claims. But I doubt it if they will share such information. This is where your personal research comes in. You have to compare them from the competition, whether those are franchised operations or independent businesses.

Naturally, you want to avoid dealing with outright liars, cheaters and scammers.

4. Talk To Other Franchisees

Remember we talked about hidden fees and avoiding scammers? This is one of the ways to uncover them.

The franchisor should be able to give you list of company owned outlets and as well as franchisees. One of the smartest moves you can take is to personally visit the stores and possibly talk with the franchisees.

5. Obtain A Written Proposal, Sample Contract, Franchise Agreement

Read it carefully. This simple document speaks a lot about the company you are dealing with. Can you spot typos and grammatical errors? Does the proposal even make sense to you?

And most importantly, can you terminate the franchise agreement? In what instances and how much will it cost?

It helps if you consider the help of a lawyer or accountant who is familiar with our local Business or Franchise Laws. But you can do that later when you are already convinced about the business.

Deal Or No Deal?

When it comes to franchise opportunities in the Philippines, you have a lot to choose from. But you have to watch out for the bad apples that could be lurking somewhere and ready to take you for a ride.

There is nothing to rush. You must be in a position to say “No Deal” if you smell something fishy. Always read the fine print and use your common sense.

The 3 Business Entry Options

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Are you thinking of starting a business in the Philippines? Do you know where or how to start?

Today, there are so many business opportunities available from almost any type of industry in the Philippines that it’s easy to lose focus on what’s really important.

So you want to be in the food business? You say you love to cook. And they say Filipinos love to eat. From Jollibee and McDonalds to those little food carts you see in the malls, there’s no end to the number of franchise operations available in the market. That’s just for the food industry. There a couple more: water refilling, ink refills, schools, laundry shops, salon and spa, and many more… you name it.

In any of these lines of businesses you can either venture on your business starting from scratch, or take over an existing business, or buy a franchise from established brands. These are basically the three options available to you. Let’s discuss each one in the succeeding paragraphs.

1. Start From Scratch

A lot of businesses are started this way. That is, the founders came up with the business idea, setup the plans, raised the necessary funds and so on.

The new business venture is typically unknown in the market. And naturally, it is still struggling to carve a name for itself.

From ideation to launch and then finally running the operations, all these entail a lot of hard work for the owners and his team. It’s even more tough especially if the venture is trying to break into a market dominated by well-known brands.

On the positive side, unlike buying an existing business, which is discussed next, the owners can take comfort in the fact that there is no negative history to overcome. That is, there’s no bad press to haunt you down.

And unlike a franchised operation, which will be discussed later also, you can be creative in the way you deal with the changes in the market conditions by offering discounts and incentives as you see fit, without getting an approval from the parent company (the franchisor).

If you have done your homework well, you have probably identified the weaknesses of your competitors. You can even exploit those areas where they fail to satisfy their clients and customers.

2. Buy An Existing Business

In the Philippines, this is the business road less traveled… and for good reasons. Buying a business from someone else is very complicated and should be avoided by first-time entrepreneurs who can’t even interpret a financial statement.

Business Opportunities

Pick One: Start From Scratch, Buy A Business, Or Get A Franchise

However, buying an existing business at the right price also presents a lot of advantages, among them are the following:

  • It’s less work on your part. The start-up stage is one of the most challenging parts of a business operation. If the business has been in the market for quite some time, you are lucky for skipping this part. It’s like adopting a three-year-old kid. You skip the pregnancy part and you don’t even experience the painful process of delivering the baby from your tummy.
  • If the business is already profitable, that spares you from having sleepless nights.
  • You already have a list of established clients and vendors.
  • Machines, equipment and other tools necessary in the operation of the business would probably stay and you can use them right away.
  • You can learn some lessons from the experiences of former owner. That is, if he can provide you with honest information, stories and data.

But then again, this option should be approached with extra caution. There are a lot of factors to consider when taking this option. You have to know such things as Business Valuation, Financial Statement Analysis, and other similar skills.

3. Buy A Franchise

The International Franchise Association has defined franchising this way:

Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise system: (1) the franchisor, who lends his trademark or trade name and a business system; and (2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system.

Essentially, you as a franchisee can run your own business and leverage on the resources and experiences of the parent company. No more re-inventing the wheel. This is far less risky that trying to start from scratch and venture on your own.

It’s been demonstrated by a number of studies that franchised businesses have much greater chances of success compared with businesses started from scratch.

So basically, when it comes to real business opportunities in the Philippines, you have three options available. Should you start from scratch, buy an existing business or get a franchise? Whatever your choice is, remember that success is never guaranteed. You still have to put in the required work, strategies and creativity in your business.