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What a Franchisee Gets for Their Royalty Payments

Many people realize that owning and operating a franchise is one of the easiest ways to become a successful business owner. As a franchisor, you will collect a one-time franchise fee. This franchise fee is intended to reimburse you for getting your new franchisee trained, setup and running their business (more on the franchise fee). In other words you are collecting a fee for your time, energy and resources used. Once your franchisee opens for business they will also be making ongoing royalty payments to you.

Franchisees may not understand the need for the royalty fees at first. However it becomes more evident as time goes on that royalty payments create a win-win situation for both the you and your franchisees (find out how the royalty fee can be structured). Franchisees make royalty payments, in essence, as contributions to the entire system. The payments are used to maintain the system and ensure that everything flows smoothly between you and your franchisees. Royalty payments are primarily for your brand recognition and continued use of your proven methods, techniques, and system. This means that your franchisees get:

  • Use of your name;
  • Protection of your name;
  • Ongoing permission to use your proprietary methods and “know how” to operate your business in their area;
  • Ongoing and immediate support for when your franchisee needs assistance (technical, operational, sales, personnel, etc.);
  • Training on new processes, advances, techniques or methods as you develop them;
  • Ability to take advantage of preferred vendors and suppliers which leads to stronger buying power;
  • National Account relationships that either you intend to establish, have already established or will continue to establish. Your franchisees can take advantage of these accounts in their area;
  • The “Family Concept” by which one of your franchisees creates an advertising or marketing piece or develops a new profit center (service) that you incorporate into all franchise operations. Everyone benefits from the efforts of each other; and
  • A support network among your franchisees stepping up to help each other. It is not just one person out there operating your business, but a group of business owners, all part of your system. In other words, you are creating a powerful culture.

Royalty payments also enable you to fund the growth of your entire system with continuous research and development (find out other ways to provide franchisees with ongoing value). When up-to-date with industry trends (and technological advances, if applicable), this may lead to the creation and marketing of new services and/or products. All of which your franchisees will benefit from to grow their business.

As a franchisor, one of your responsibilities will be to continue to develop and implement various advertising and marketing initiatives (see our article that explains more about your responsibilities as a franchisor). These initiatives can be used nationally or locally. Each of your franchisees will immediately benefit from such initiatives. Over time, your system’s brand becomes increasingly identifiable. This translates to increased business and thus more profits for everyone.

Franchisees join a franchise system, to be part of something larger, something they are unable to do themselves. They soon realize that the success of their business is (to a large extent) attributed to the strength of the entire system. There is power in numbers. To learn more about the value and benefits of royalties, call us directly at 1-877-615-5177 or simply fill out our quick and easy contact form and we will be happy to talk with you.