Guide

Franchise fees, explained

Beyond the upfront investment, a franchise relationship runs on ongoing fees. Understanding them is the difference between a healthy unit and a struggling one.

Royalty fee

The royalty is usually a percentage of gross revenue (commonly 4 to 8 percent) paid to the franchisor for the brand, systems, and support. It is charged on revenue, not profit, so it hits whether or not you had a good month.

Advertising or brand fund

Most systems also collect an ad fund fee (often 1 to 3 percent) that pools national or regional marketing. You contribute regardless of how much local benefit you see.

Other fees

Watch for technology fees, transfer fees, and renewal fees. All of these are disclosed in the FDD. Compare them across brands in the FDD database before you commit.

Franchisors looking to grow can read about franchise development on Franchise Fast Track.