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What is a Franchise Royalty Fee?
There are several fees associated with opening a franchise, and they can be confusing. A franchise royalty fee is a monthly fee based on revenue and is paid in addition to the upfront franchise fee.
When you open a franchise, you pay a franchise fee. This is an upfront cost that will give you access to a franchisor’s business model. According to the Small Business Administration, a franchise fee is a license to own and operate a franchise business.
Franchisors charge a franchise fee that typically ranges from $20,000 to $50,000, but in some cases can run as high as $100,000.
There are also “other” franchise fees that include marketing fees and royalties.
The Small Business Administration stated that franchise royalties are collected by the franchisor on a monthly basis, and are based on a percentage of revenue. Franchise royalties range from 4% up to 12% or more. The actual percentage depends on the type of franchise you are opening.
According to the Small Business Administration, a food franchise often has a lower franchise royalty fee than other types of franchises due to the high volume of revenue.
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