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What About Royalties and Transfer Fees
Royalties
The royalties are the franchisor’s income and reward for developing the brand and the structure of the overall operations. Royalties also serve to finance upgrades to technology, conduct Discovery Days, and manage the aggregate development of the corporation.
Usually royalties are 5-8 percent of the franchisee’s monthly gross sales. In other cases, a franchisor will charge a higher rate based on net sales (after expenses have been deducted).
Transfer Fees
A transfer fee, usually described in the FDD, is an obligation placed upon the franchisee seller of an existing franchise. The fee requirement protects the franchisor from incurring the administrative costs of a transfer, which is another term for “resale.”
Without such a fee, the franchisor would be unable to re-coup the expenses associated with numerous resales, which would become prohibitively costly.
However, the fee is negotiable in most cases. This is particularly true if and when the franchisor is eager to dissolve the business relationship with the current franchise seller because of poor management.
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