08 Sep, 2017

Typical Franchise Royalty Fees

Typical franchise royalty fees Due to economic conditions more and more mobile franchise offerings are now being offered. This makes sense because loans are hard to get and mobile franchises have an initial cost advantage. Many folks are out of work, and they can't borrow $500,000 to a $1 Million to set up a brick and mortar store. Okay so now you can understand why mobile type franchise offerings are on the rise. Let's talk a little bit about an important consideration in these types of franchises; typical franchise royalty fees. Not long ago, I inadvertently entered a franchise conversation and debate on what was the best way for a mobile restaurant franchise business to charge royalties to their franchisees. Being a former franchisor of mobile units (mobile car washes), I am for a fixed franchise royalty fee, however many of the franchise attorneys which put together franchise agreements and disclosure documents believe that charging a percentage is the way to go, after all, this is the way that most franchise agreements typically set things up for fixed site businesses. One of the attorneys in the conversation noted that tracking the cash flow of a mobile business is extremely difficult, and thus, trying to base the royalties on supplies used, or percentage of royalties just doesn't make sense, and auditing the supplies used isn't easy either. Further, such restrictive audits do indeed cause animosity between the franchisor and the franchisee in the typical franchise royalty fees. To which I completely agree! He's absolutely correct. You see, as an entrepreneur in the franchising sector and a franchisor founder, I'd like to say this. Let me decide the royalty structure, what works for my company, so that I can maintain a good relationship with my franchisees without trying to charge a percentage, thus be drawn into a sea of mistrust in the franchise relationship, requiring audits, after all no one wants the IRS to rummage through their financial life. A franchisor cannot track every transaction on a mobile truck, it's impossible to monitor even five units; often the franchisee can't even monitor their units. How on earth can a franchisor monitor and collect the royalties on 100 typical franchise royalty fees each with anywhere from 1-15 units? I know I never could, even with today's technology, there would be too many side orders, side jobs, re-do, etc - and even if you could, what a nightmare. Indeed, as a franchisor I need to spend my time promoting the brand, marketing, setting up territories, and innovating, mentoring, and winning in the market place, I want to win.