Royalty

What it means

The royalty is the core ongoing payment in most Australian franchise agreements. In exchange, the franchisee keeps the right to trade under the brand and use the franchisor's systems, intellectual property and ongoing support. It is distinct from the one-off initial franchise fee paid to join.

Royalties are usually struck as a percentage of gross sales (typically in the single digits to low teens, depending on the sector), which means the franchisor's income rises and falls with the outlet's turnover rather than its profit. Some networks instead charge a flat fixed royalty per week or month, and a minority use a margin on supplied goods in place of a stated royalty.

The royalty rate, how it is calculated, and when it is payable must be set out in the franchise agreement and summarised in the disclosure document the franchisor gives you before you sign, as required by the Franchising Code of Conduct 2025.

In practice

Because a percentage royalty is charged on gross sales, not profit, it is payable even in weeks where the outlet makes little or no margin. When you model a site, treat the royalty as a fixed cost of revenue and check how it interacts with the marketing levy and any supply margins.

Comparing royalty rates across brands is only meaningful alongside what you receive for them and the other fees stacked on top. A lower royalty paired with high supply markups or a large marketing levy can cost more than a higher headline royalty with few other charges.

A real example

A cafe franchisee turning over $600,000 in gross sales a year on a 7% royalty pays about $42,000 in royalties for that year, payable in weekly instalments regardless of whether the cafe was profitable that week. On top of this sits a separate marketing levy and, in many systems, a margin built into the price of supplied coffee and consumables.

Royalty, FAQs