Franchise royalties are sometimes looked upon in a negative way in the eyes of franchise seekers, often simply because of the fact that their function in the franchise equation is misunderstood. There are several important points to grasp when it comes to franchise royalties, exactly what they are, and how they benefit both the franchisor and the franchisee.

Royalties are the franchisor’s portion of the income generated from the franchisees customers and clients. Simply stated, royalties are paid by the franchisee for the use of the franchisor’s proven system, support system, and brand recognition, which are then passed on to the customer.

Think of royalty fees as a monthly investment in your business that will contribute to a steady increase in sales over time. As the brand becomes more and more recognized as a household name, the value of the entire franchise, including your location, increases dramatically.

Support systems include top franchise executives providing top-notch, ongoing training and coaching in key areas of business, including advertising, marketing, and training. You, as a franchisee, are receiving precisely the tools required for operating a highly successful location for that specific franchise brand.

First-time franchise buyers often get confused about ongoing royalties, even going as far as viewing them negatively. However, as with all sources of revenue, clearly the royalty fee is collected from the customer. This is a crucial point to understand because it clearly shows that the customer is the one who ultimately pays for everything, including utilities, wages, and all other costs associated with doing business. Customers know that they can buy a Big Mac in Los Angeles or New York without even a trace of flavor disparity. This brand allegiance represents a huge benefit to a new or existing franchisee. Thus, the franchisee should want the franchisor to earn a significant amount of royalties because it indicates a strong and healthy franchise.

Franchise royalty fees generally tend to range between 3% and 9%. When you factor in the overall value you are receiving from the franchisor’s proven systems and brand recognition, you can clearly see that it makes good business sense to you, as a franchisee, to pay royalties.

Register for your Free Franchise Consultation. The Franchising Authority will help you find your perfect franchise!