Franchisee Fees Explained

When you become a franchisee, there are mainly two fees that you pay to your franchisor. One is the franchisee fee which is one time; other is service fee or royalty fee, the main revenue earner for the franchisor. It is the fee you have to pay as long as you remain a franchisee. It varies between nothing to twenty percent of the sale. It can be paid on either weekly or monthly basis. But, this fee sometimes become bone of contention between the franchisee and the franchisor and ruins what should be a very good relationship. To avoid this situation, be very clear from the beginning on the point of royalty fee.

Sometimes, you may get tempted by the low royalty fee of a company, but remember that cheaper isn’t always better. If the franchisors do not show an ongoing interest in the development of the franchisee, chances are that he is not going to offer much help to him. In the long run, it will be the franchisee who will suffer. In general, royalty fees range between seven to eight percent of the sale. Another major point that is good for the franchisor but bad for franchisee is that most of the time this royalty fee is based on sales in the week or month but not on the profit, something that favors the franchisor more.

If the royalty fee was based on profit, then the franchisor had to keep an eye on the cost and sales of the franchisee, which would have been time-consuming and difficult. But from the point of view of the franchisee, the royalty fee eats up much part of the profit that he earns after deducting the cost of production. Hence, there should be a balanced royalty fee. The franchisor has the right to ask for it because; it was responsible for creating a brand name of the product/concept. On the other hand, the franchisee should earn something from his business to get motivated. The royalty fee can be negotiated when term renewal time comes.

If you want details regarding this and more on the franchising world, contact the brandEXPANSION associates.

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