Royalty fees paid by a franchisee are heavily relied upon by the franchisor to support the franchise network, drive innovation of products and services, stay current on technological advances, and develop the brand presence and marketing collateral.

It is also used to cover expenses that are incurred at the franchisor’s support office, such as rent, utilities, and support team wages.

Most commonly, royalty fees are a portion of the franchisee’s total gross sales, as either a percentage or a fixed amount, calculated and paid weekly, monthly or quarterly.

Your obligations in regards to the royalty fee, and any other fees and charges that you are required to pay to the franchisor, should be very clearly outlined in the franchise agreement and disclosure document.

As a prospective franchisee, do your research and seek professional advice to ensure that you understand, among other important legal obligations, the royalty fee calculation and due dates for payments.

More often than not, new franchisees should be prepared to be paying royalty fees from day one of trade.

Your franchisor will outline when and how your royalty fees are due and payable and should always provide a tax invoice for royalty fees, and any other fees and charges that you pay under to the franchisor.