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Franchise Royalty Payments: Betting On Your Business in the Long Run

By: Jania Bailey


In this week’s edition of FranNet’s weekly blog, we tackle the subject of royalty payments for franchisees. Royalty payments are a typical obligation in which franchisees pay the franchisor a set percentage or flat rate fee each month generally. This income allows the franchisor to collect payments from all franchisees and strengthens the overall business model.

First, a great definition is never unwelcome. Royalty Payments are “scheduled payments or contributions made to the entire organization, used to maintain the system and ensure that all avenues flow smoothly between the franchisor and franchisee.”
In essence, when you make your scheduled regular royalty payment to your franchisor, you are—in fact—guaranteeing a brighter future for the brand as a whole, and your business individually. And isn’t that one of the main reasons you would choose a franchise opportunity in the first place? Think about it another way: the franchisor  is making a bet on you that you’re going to succeed long-term. When you first open your doors, the franchisor will be delivering a tremendous amount of support to help you launch your new business successfully.
And more than likely, you’re not going to be making very much revenue right off the bat; thus, your royalty payments will be extremely low.
However, as your business grows, your revenue grows, your royalty payment grows, and the franchisor is able to help you establish a solid business for the long haul. It’s a win/win scenario for the franchisee and the franchisor.
Next, let’s examine some of the specific value that all collected franchise royalty payments put to use for everyone’s benefit:
  • Technological Advances: Many franchisors utilize combined royalty payments to lead directives from the top—with a specific interest in technology. If you depend on your franchise opportunity to stay on the cutting edge for your benefit, it takes a budget. For example, will your franchise opportunity soon have a mobile application for smartphones? Could that drive further sales for your concept?
  • Leverage the Buying Power: When associated with a franchise, the franchisor brings its franchisees a tremendous amount of buying power to source items necessary to operate your business. Whether it’s computer systems, signage or supplies, the royalties you pay allow the franchisor to negotiate the costs for those items much more cost effectively than you could alone locally.
  • Expansion: You want your franchise brand to succeed and regular royalty payments allow headquarters to focus their energy on growing the brand and business model. By moving into new territories and markets, the franchisor can draw in even more franchisees—all of whom will pay royalties too. A successful franchise often has new outlets opening on a very regular basis. And the royalty payment pot continues to grow—making all of your individual businesses grow as well.
Hopefully by now, you’re seeing a very common theme in the aforementioned examples. When you pay royalty fees to your franchisor, you are actually investing in your own personal business in the long run. In a perfect situation, you will have chosen your franchise concept because you are comfortable with the leadership and direction of the brand. Your regularly scheduled royalty payments, when totaled up collectively, make it possible for the head office to make progress on the greater good—all on behalf of the individual franchisees whose sales make the day-to-day operation a success.
Do you feel that you’re ready to get started? If this article has inspired you to investigate a franchise opportunity, perhaps it’s time for a free consultation with a qualified and experienced franchise consultant. As it turns out, FranNet is just the place! As a franchise consultant company with a 27-year track record of assisting individuals on their path to business ownership, make arrangements to speak with one of our consultants today.
This article was originally published by FranNet
Published: January 29, 2014

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Jania Bailey

Jania Bailey is president/COO of FranNet, North America’s most well-respected franchise consulting firm. Bailey sits on the board of directors for the International Franchise Association (IFA) and is a certified franchise expert. Her background includes over 25 years experience in the banking and franchise industries.  Bailey also authored the book, “Thriving – The Journey to Success in the Business World.” 

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