What is a franchise royalty fee?

Understanding Franchise Royalty Fees: A franchise royalty fee is a regular payment made by a franchisee to the franchisor as part of the franchise agreement. It is typically calculated as a percentage of the franchisee's gross sales and serves several essential purposes within the franchise system: 1. Brand Usage and Support:

How do franchise royalties work?

Royalties may be a certain percentage of your franchise’s revenue, or they may be a flat fee per payment period. Some franchisors use a mix of flat fees and percentages. For instance, you might pay a flat fee until your revenue reaches a certain point, then pay a percentage. Or you might pay a percentage on a sliding scale.

What happens if a franchisee fails to pay a royalty fee?

For example, an experienced franchisee or one opening multiple franchises may have leverage to negotiate the royalty fee after proven performance. Most franchisors impose consequences for franchisees who fail to make royalty payments. These penalties are usually outlined in the franchise agreement and commonly include: