Royalty fee is a franchise agreement term, this is a monthly fee usually charged on the revenue stream to use the franchise name or trademark. The most common amount is between 5 and 7% of the sales. Most franchisors require the royalties’ payment each month.
Mathematically the royalty fee of 6% equals 50 to 70% of net profits. Thus the franchisee is merely a slave to the franchisor for the services they render. This section of the website is designed to educate and assist franchisees in getting a better deal for their business investment.
The primary reason for the franchise arrangement is the increased net profit for the franchisee in using the franchisor’s name, logo, brand, or trademark. The franchisor charges an upfront fee called a Franchise Fee, monthly Royalties, in some agreements a License Fee and Marketing/Advertising minimums. These additional costs to the franchisee are paid to use the franchisor’s name.
To negotiate a franchise agreement, the potential franchisee needs to fully understand the terminology used in the franchising industry. Often, new franchisees misunderstand the terms ‘Franchise Fee’, ‘Royalty Fee’, ‘License’ and ‘Marketing Fee’.
