Franchise royalties and ongoing fees explained

The key thing to grasp: royalties and levies are usually charged on gross sales, before your costs, so they are payable even in a lean month.

• Royalty (service fee): the core ongoing payment, a percentage of gross sales or a fixed fee, for the licence and support.
• Marketing levy: a contribution to a pooled marketing fund the franchisor administers (and must account for annually).
• Local area marketing: a minimum you may be required to spend promoting your own outlet.
• Technology fee: for required POS, booking or reporting software.
• Renewal and transfer fees: payable at the end of the term or when you sell.
• Audit fee: sometimes payable if an audit finds under-reported sales.

A percentage royalty scales with your sales: it costs less when you are quiet and more when you are busy. A fixed periodic fee is predictable but bites hardest when sales are low. Some home-based and service franchises charge a fixed fee instead of a percentage, which can suit a low-overhead model. Neither is automatically better, model both against your expected sales.

1. Find every ongoing fee in the disclosure document, not just the headline royalty.
2. Express them as a combined percentage of sales (or a monthly dollar figure).
3. Subtract them, and your other costs, from realistic sales to see your take-home profit.
4. Compare the fees against the category benchmarks in our Fee Index.
5. Have an accountant sanity-check the numbers before you commit.

See our guides on franchise costs and financing, and the glossary entries on royalty, marketing levy and ongoing fees.