Most franchisors charge an initial fee (often referred to as the franchisee fee) to cover the upfront costs of "setting up" the franchisee in business. These companies have often spent a great deal of money to establish, prove, document, and then market their Franchise System.
Franchise Fee: Often referred to as "initial franchise fee." This is a one-time, up-front payment by the Franchisee to the Franchisor for the rights to a franchise. This fee is due and paid once the Franchise Agreement is signed, is generally non-refundable, and precedes final payments.
There will be certain out-of-pocket expenses required of the new owner for real estate leases, for build-out, for equipment, for licenses, etc. There will be expenses to market the concept, to pay employees, etc. Plus, ongoing fees (Royalties) are usually taken monthly by the franchisor, as a percentage of the franchise owner's gross income, or a flat monthly fee is charged.
Item 5,6, & 7 of the Franchise Disclosure Document
will list out all costs associated with starting and launching your franchise.
Therefore, the total initial investment for a particular franchise is estimated in that franchise company's Uniform Franchise Disclosure Document (UFFD or FDD) so that prospective owners can estimate ALL costs associated with starting up their new business.