Franchise Glossary
Royalty
What is Royalty in franchising?
An ongoing fee paid by the franchisee to the franchisor, typically 4%–8% of gross revenue paid weekly or monthly, in exchange for continued use of the brand, systems, and support infrastructure. Royalties are defined in FDD Item 6 and continue for the full term of the franchise agreement. The royalty rate, combined with the marketing fund contribution, represents the franchisee's total ongoing cost of brand affiliation.
How much is a franchise royalty fee?
Most fall between 4 and 8 percent of gross revenue, paid weekly or monthly, and the exact rate is disclosed in FDD Item 6. A small number of brands charge a flat monthly amount instead, which behaves very differently as volume changes.
What does the royalty pay for?
Continued use of the brand and trademarks, the operating system and its updates, franchisor support and field visits, and technology infrastructure. It is separate from the marketing fund contribution, which is usually another 1 to 3 percent and is spent on advertising rather than on support.
Are franchise royalties negotiable?
Rarely, and for a structural reason. Franchisors keep fee terms uniform across the system because Item 6 is disclosed to every candidate and inconsistent rates create both legal exposure and friction with existing franchisees. Established brands almost never move. Where flexibility appears, it is usually in a young system or in a multi-unit development deal.