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Franchise Guide

Entry fee, royalties, etc. in franchise networks

It is no surprise that if the franchisor accepts that the franchisee copies him, it is because he also finds it financially worthwhile to do so.

This is the counterpart to the investment made by the franchisor to create and test the concept and have the franchisee benefit from it. The cost of the initial training and assistance may be included or invoiced separately.

The counterpart to the use of a name, a brand. Often a % of the turnover but this can also be a fixed amount.

This % or this lump sum pays for the various services that the franchisor provides to the franchisee: assistance, training, purchasing centre, etc. It is often included in the brand name fee. This is also called “royalties” or “running fees” or “on-going fees”.

It is not uncommon for the brand name fee and the service fee to be combined under a single undetailed heading: royalty or fee.

The addition of these percentages to the lump sums for all the franchisees provides greater resources and enables more effective and better negotiated campaigns (i.e. more efficient in developing every member’s business) to be undertaken.  

Some franchisors are manufacturers or suppliers of the products they sell to the franchisees. They therefore have a margin.

If the franchisor is a purchasing or referencing centre, the suppliers sometimes pay end of the year discounts or commissions that enable royalties to be reduced. It is desirable that the franchisees should be informed of this and this is even compulsory in certain countries.

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