The fees of any franchise are imperative to study if you’re a prospective franchisee. While some businesses are very transparent, others are not.
Now, what I thought when I initially saw Happy Lemons’ FDD was “holy wow.” Personally, it doesn’t feel right in comparison to other companies.
While they’re not necessarily the most up to date numbers because it was pretty hard to find an FDD online, Happy Lemon’s franchise fee is very steep. To open a Happy Lemon location, you will need a franchise fee ranging from $95,000 to $125,000. The overall cost to buy a Happy Lemon franchise ranges from $289,000 to $607,000 according to the latest FDD I was able to find.
As Happy Lemon’s FDD also states, buying a franchise is a complex thing, and simply relying on the numbers reported in the FDD shouldn’t be your only due diligence if you’re considering investing.
Whether you’re buying a Dunkin’ Donuts, a Baskin-Robbins, or another franchise, it’s crucial that you do a lot of due diligence. Looking at the associated cost is only one aspect of preparing.
Happy Lemon Franchise Fee & Costs
While I personally appreciate the fact that FDDs have become substantially more standardized in the way information is presented, I think it creates a huge problem. When I get multiple requests from franchisees I work with to tell them what I think about something like Happy Lemon, it prompts the question “is this a good a good franchise in general?”
I think the standardization of the FDD creates a great way for companies to present information in a structured manner. However, I feel there’s a cost to it that is overlooked – franchisees neglecting other aspects.
The costs associated with opening a Happy Lemon franchise should not be overlooked, and the most common ones are highlighted above. With a franchise fee between $95,000 and $125,000, that portion is on the more expensive end. On the other hand, the total cost of $607,000 as the upper limit for opening a franchise is considerably cheaper than an alternative like McDonalds.
While they may not be overly comparable models, all costs need to be taken into account in your decision.
Requirements
Most franchises have certain things they look for in a franchisee and Happy Lemon is no different. With their unique approach to beverages with an Asian flair (through their high-quality, freshly brewed teas), they want partners they work with to be successful. In return, they themselves are successful as well.
Like with all franchises, the company collects fees from sales, so your success directly translates to an improved top line for them as well.
Happy Lemon has expanded to more than 2,000 locations since it was founded in 2006, which is a very impressive feat. And if you’re a milk tea lover, it could just be that owning such a booming business is of interest to you too.
You should know that Happy Lemon has a 7% royalty fee, which is towards the higher end of range, and probably has a marketing fee as well. While I wasn’t able to find the actual marketing fee they’re charging franchisees this year (their FDDs are hard to come by from public sources), the royalty fee plus the marketing fee typically doesn’t exceed 12%.
It’s also worth noting that paying more to the franchising company isn’t necessarily bad. Some are able to spend marketing dollars very effectively which in turn drives more business to the franchisees. Others, their marketing dollars are just wasted.
I’ve reported on some pretty unhappy franchisees in the gym space where it’s easy to go through a marketing budget with little to show. Beware before you open a sweaty hotbox!
What to look for
There are tons of things potential franchisees should ask a company during the due diligence. However, you should also know that they are in the market to sell you something, so you’ll need to keep your skeptical hat on and not get taken advantage of.
Besides the cost I mentioned above, you should always attempt to get Happy Lemon’s FDD as early in the process as possible. You’ll be able to see the most important cost metrics when you do.
There are particular sections that are very important, and it can be good to compare those to other, comparable businesses. That way you can see if the company offers competitive rates.
In particular, item 5 and item 6 are relevant when it comes to costs. Item 5 looks at initial fees whereas item 6 looks at continuing fees. If you want to have a second opinion on a franchise, make sure to reach out.
What I do
Through the work that I do, I get asked about tons of different franchises. I’ve looked at hundreds of FDDs as a consequence. Companies may be required to provide potential franchisees with their franchise disclosure documents, but that doesn’t always mean they tell the entire story.
Some franchises, particularly struggling ones, seem to have a way to present numbers in a way that makes their business look considerably more favorable than I personally think is warranted.
Happy Lemon is not necessarily one of those sketchy companies, but it’s a company I frequently get asked about, so I’ve chosen to put this review together to provide more context on the topic.
