One of the attractive elements of the franchise model for business owners is the ability to charge royalty payments. In essence the royalty fee is a form of ongoing income for the franchisor and is usually paid as a weekly or monthly fee, either expressed as a flat fee or a percentage of the individual franchisee’s turnover or a combination of both.
The question on most franchisors’ lips when starting a franchise is “How do I determine what to charge?” Establishing the correct royalty fee structure is vital to the ongoing success of the franchise business for both the franchisor and the franchisee.
For the franchisor the asset value of his/her business is partially based on the amount of contracted royalty payments he/she has established. On the other hand, the royalty fee must not be too high so as to place unnecessary financial burden on the franchisees. Franchise networks only grow if the individual franchisees are doing well.
Charging a flat fee or percentage of turnover or a combination of both will depend on the type of business, what is being offered and how much support is being provided by the franchisor. Get in touch with our franchise consultants for franchise advice and let us help you find the best royalty fee combination for your business.
