Demystifying Franchising: Paying Franchise and Royalty Fees Aren’t Worth It

A positive relationship between a franchisor and their franchisees is absolutely essential in order for a brand to be successful.

Part of that relationship is financial—when a franchisee signs on to open their own location, a portion of their initial investment goes to the brand itself. The local owner then pays an ongoing royalty fee on a recurring basis to the franchisor that’s typically a percentage of their gross sales revenue. One of the biggest myths in franchising is that franchisees aren’t getting enough bang for their buck when it comes to those initial and ongoing fees.

But those fees ultimately serve to set local business owners up for success and further the development of the brand as a whole. Rick Robinson, founder and president of Services4Franchising, says the perks that come with paying a franchisor are well worth it.

“This myth pops up a lot with entrepreneurs who have past experience running their own business. It can be hard for them to see the value that comes with giving up a percentage of their revenues,” said Robinson. “But being a part of an established brand with proven operational systems comes with competitive advantages that aren’t available to people who decide to go it alone. At the end of the day, it’s fees that open up those doors and make those perks possible.”

When entrepreneurs become a part of a proven franchise, they gain access to an entire team of people that are there for their benefit. With varying areas of expertise, a brand’s corporate staff offers support and guidance to franchisees as they get their businesses of the ground. Being a part of a franchise system also helps local owners drive more customers to their businesses through collective advertising funds and assistance compiling targeted marketing campaigns.

Another advantage that franchisees gain after making an investment is a franchisors’ proven system. There’s no need for franchisees to reinvent the wheel—there’s a whole group of corporate team members and other local owners who have worked out the kinks and learned which methods are the most likely to lead to success.

“For a small fee, franchisees get so much in return. From brand recognition to website maintenance, franchise brands bring years of experience to the table when they’re helping a new owner launch their business,” said Robinson. “Joining a franchise brand can ultimately help a new owner speed up the time it takes to become profitable, which isn’t something that should be overlooked.”