America's #1 Franchise Directory, Trusted for Over 15 Years

Everything You Need to Know About Franchise Royalty Fees

Royalties Word Art

One of the fees you will be required to pay to your franchisor if you buy a franchise are royalty fees. These fees, which are typically a fixed percent of your revenues or gross sales, give you the right to use the franchisor’s brand and operating system.

Why You Have to Pay Royalty Fees

In addition to paying for the privilege of being a part of a franchisor’s brand family, royalty fees pay for certain benefits you receive as a franchisee. These fees cover ongoing training and support, marketing and promotion, and consulting from the franchisor.

Prices May Vary

How much a franchisor charges in royalty fees (which may be taken out of your bank account weekly, monthly, or quarterly) depends on the franchise. Most franchises charge between 4 and 6% of gross sales, though they can be lower or even much higher. While some franchisors charge a set percentage of sales, others charge escalating or declining percentages, depending on what your sales levels are. Others charge a flat monthly fee rather than a percentage. Some don’t charge any royalty fee at all, but build the cost into the products you are required to buy from the franchisor.

You may need to write a check for your royalty fees, or your franchisor may simply draft them from your bank account. Keeping accurate sales records is a necessity so the franchisor knows how much you owe and you don’t end up paying more than you have to.

It’s important for you to review the franchise agreement to find out what you will be required to pay. And don’t expect to negotiate: royalty fees are non-negotiable.

Before you sign the dotted line, however, consider whether paying that fee will put you in the hole or allow room for profit. Look at the typical profit of a franchise in this brand after all expenses, including those royalty fees, and see what’s left. If there is still a healthy profit left over, proceed. But if the numbers don’t make sense and don’t indicate that you will be making the kind of money you hoped for, move on to a different opportunity.

What Happens if the Franchisee Can’t Pay the Royalty Fees

Make sure that the penalty for not paying fees is outlined in your franchise agreement. Most franchisors consider not paying royalty fees a breach of the franchise agreement, and they may terminate your franchise or hold you liable for other expenses. Read the fine print so you know what you’re getting into.

Susan Payton is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.

comments powered by Disqus

Your Request List

You can add items by clicking the "Add to Request List" button or checkbox when you find something you're interested in.

You may add up to 15 items to your Request List

Your request list will follow you around the site.

When you are ready to complete your request for free information, click "Submit" in your Request List.

Why not get started by browsing our New Franchise Opportunities or Low Cost Franchise Directory?

You may only enter 15 items in your Request List.

To request information from your selected companies, just fill in the form and click "Submit".

OK, got it

Request Info From:


Your List is Empty

You can add items by checking the "Request FREE Info" boxes.

* indicates required field

Optional Information

Join our mailing list!

We share your information only with your selected franchises.