Overview Of Franchise Royalty Fees
When you own a franchise, part of your obligations to the franchisor may be to pay a franchise royalty. This will be an ongoing expense in addition to your franchise start-up fees. While a franchisee generally earns revenue through the sale of goods or services, the franchisor will earn revenue through franchise royalty payments.
Purpose of Franchise Royalty Fees
In essence, franchise royalty payments will contribute to overall business operations. The fees will be used to maintain the business and keep your franchise running smoothly.
Your franchise royalty fees will be used for things such as:
- maintaining the avenues of business and distribution between the franchisor and its franchisees;
- implementing technological advancements;
- creating and marketing new products and services; and
- paying the franchisor's business expenses (employee compensation, rent and utilities at their headquarters).
In addition, your franchise royalty payments will help the franchisor expand operations. The more your franchisor expands to new locations, the more recognizable your brand will become. This will help your own franchise location build recognition.
If you have questions about your franchise royalty fees, you can seek advice from a business and franchise lawyer. A business and franchise lawyer can explain the benefits and purpose of your franchise royalty payments.
Payment of Franchise Royalty Fees
Typically, franchise royalties will be paid on a monthly basis. The amount that you pay may be calculated as a percentage of your monthly sales. The most common type of royalty fee is calculated between 5% and 8% of your gross monthly sales. Some franchisors may charge a franchise royalty of 6% to 10% based upon your monthly net sales.
Agreement to Franchise Royalty Fees
Before you sign your franchise agreement, it is important to know the expected franchise royalty fee. You can find this information in your Franchise Disclosure Document (FDD). You will receive your FDD at least 10 days before signing the franchise agreement. This will give you time to consider the terms of the business arrangement and make an educated decision.
When you receive your FDD, you should go over the terms with your business and franchise lawyer. Your lawyer can explain the terms of the business arrangement between you and the franchisor. If the terms are favorable, your business and franchise lawyer may advise you to proceed. If there are unfavorable terms within the FDD, your attorney may bring them to your attention, and either help you overcome the unfavorable terms, or advise you to decline the opportunity.
Purpose of Franchise Royalty Fees
In essence, franchise royalty payments will contribute to overall business operations. The fees will be used to maintain the business and keep your franchise running smoothly.
Your franchise royalty fees will be used for things such as:
- maintaining the avenues of business and distribution between the franchisor and its franchisees;
- implementing technological advancements;
- creating and marketing new products and services; and
- paying the franchisor's business expenses (employee compensation, rent and utilities at their headquarters).
In addition, your franchise royalty payments will help the franchisor expand operations. The more your franchisor expands to new locations, the more recognizable your brand will become. This will help your own franchise location build recognition.
If you have questions about your franchise royalty fees, you can seek advice from a business and franchise lawyer. A business and franchise lawyer can explain the benefits and purpose of your franchise royalty payments.
Payment of Franchise Royalty Fees
Typically, franchise royalties will be paid on a monthly basis. The amount that you pay may be calculated as a percentage of your monthly sales. The most common type of royalty fee is calculated between 5% and 8% of your gross monthly sales. Some franchisors may charge a franchise royalty of 6% to 10% based upon your monthly net sales.
Agreement to Franchise Royalty Fees
Before you sign your franchise agreement, it is important to know the expected franchise royalty fee. You can find this information in your Franchise Disclosure Document (FDD). You will receive your FDD at least 10 days before signing the franchise agreement. This will give you time to consider the terms of the business arrangement and make an educated decision.
When you receive your FDD, you should go over the terms with your business and franchise lawyer. Your lawyer can explain the terms of the business arrangement between you and the franchisor. If the terms are favorable, your business and franchise lawyer may advise you to proceed. If there are unfavorable terms within the FDD, your attorney may bring them to your attention, and either help you overcome the unfavorable terms, or advise you to decline the opportunity.
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