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Royalty Fees in Franchising – What Are You Paying For (Every Month)?


So you’ve paid the franchise fee, opened your outlet, and customers are rolling in.

But wait—every month, the franchisor wants a cut of your sales.

That’s called a royalty fee.Let’s decode what it means, why it exists, and how it affects your profits.



What is a Royalty Fee?

A royalty fee is an ongoing payment that a franchisee (you) pays to the franchisor (the brand owner) for the continued right to use the brand, systems, and support.

It’s like paying rent for a business formula that works.

Royalty fees are usually charged:

  • Monthly (most common)

  • As a percentage of your sales or revenue

  • Sometimes as a fixed monthly amount (rare)

Example:

Let’s say your franchise agreement mentions a 10% royalty.If your outlet makes ₹5,00,000 in sales this month, you’ll pay:

₹50,000 as royalty to the franchisor.

(And no—this doesn’t include tax, staff salaries, or rent. It’s a separate cost.)

What Are You Really Paying For?

Here’s what the royalty fee usually covers:

  1. Brand ContinuityThe franchisor continues to build the brand name, invest in PR, national marketing, etc.

  2. Ongoing SupportYou get access to business consultants, operations experts, and tech support when needed.

  3. New Products & InnovationsFranchisors continuously improve menus, services, or products. That R&D isn’t free.

  4. Centralized ServicesThink bulk raw material procurement, logistics, updated training, or CRM systems.

In short: You're not just paying for the name. You're paying for everything that keeps that name powerful.

Types of Royalty Fees:

Type

What It Means

Percentage-Based

Most common. 5% to 15% of gross sales.

Fixed Fee

A set monthly amount (e.g., ₹20,000).

Hybrid

Fixed + Variable (e.g., ₹10,000 + 5%).

Is It Worth It?

Good question.

Paying royalty fees only makes sense if you’re getting real value in return.

Before signing any agreement, ask:

  • What support will I receive every month?

  • Is the brand running national advertising?

  • Will I get help with local marketing, vendor issues, or hiring?

  • How often will I get new products or upgrades?

If the answers are vague, pause and reconsider.

Final Word

Royalty fees are not a scam—they’re a standard part of franchising worldwide.But they must be fair and justified.

As a franchisee, it’s your job to calculate your net margins after royalties. You’re in business to make profit—not just to wear a fancy brand name on your shopboard.

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