What Is the Purpose of a Royalty Fee?

Understand that every franchise will carry some initial start-up cost. The money may either go toward the franchisor, but the costs may also include the amount of money necessary to begin the business. This includes utility bills, rent on the unit or property, supplies, and other business-related expenses.

On top of that, many franchisors will charge franchisees royalty fees, a monthly cost based on a fixed percentage or a proportion of the sales. The idea is that the more money that the franchise makes, the franchisor will also benefit from this.

What Do You Get from Royalty Fees?

What does a franchisee get from paying royalty fees? The most prominent and established businesses require franchisees to pay royalty fees. There is some security knowing that you are managing a franchise that is already well-known and on the tip of everyone’s tongues. Furthermore, the franchisee has essentially joined that franchisor’s family, and thus is given all the privileges of using those trademarks and proprietary tools or equipment.

The additional benefits that royalty fees provide to franchisees include:

  • Franchisees can be given more help upon the startup of the business, such as:
    • Store location
    • Construction
    • Computer software
    • Equipment
    • Training for employees and managers
    • Marketing for the grand opening
  • On-site visitations
  • Day-to-day and ongoing operations
  • Touching base to assist in running the business
  • Ongoing marketing of the business
  • Updating training procedures and business methods

The royalty fees and initial start-up costs will vary for each company, so there are not across the board standards. This will be critical in making your decision to franchise or not, so it is best that you understand all of the terms of the contract before diving in. Our Los Angeles franchise lawyer can assist you with reviewing these contracts.

Speak with a Seasoned Franchise Lawyer Today!

At Franchise Legal Support, our leading attorney, Mr. David Levaton, has worked as an owner and operator of a multi-unit franchise operation while also running his own legal firm. He has first-hand experience in these facets of franchising. Knowing that you may have many questions about how to begin your franchising endeavor, Mr. Levaton can help break down some of the complex legal language so that you do not feel overwhelmed by the contracts and other franchise agreement terms.

Be sure to contact us today if you have any questions about how to begin. Call (888) 631-0048 or fill out our case consultation form to make an appointment.

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