Royalties Forever?

Find out what happens to your franchise fees.

Royalties Forever?

When looking at several companies before buying a franchise you may notice that many charge an upfront franchise fee and ongoing royalties based on sales. You may ask why you should have to pay a royalty forever and what you will get for your money?

This is a great question to ask each of the companies you’re considering. In general, royalties are used to fund the franchise company. They provide income to the franchisor and compensation for the continuing use of the trademark, and allow the franchisor to provide services and support to its franchisees. The amount and type of support provided varies among franchisors, even within the same industry.

Comparing both the initial and ongoing support and services provided by each of the companies you’re considering may help you decide which franchise is best for you.

Some of the support services provided by franchisors include:

  • Research and Development

A good franchisor invests in staying ahead of the curve to meet market demand for products and services, and will have a staff devoted to developing, testing and instituting new products and enhancing consumer services. This is especially important in today’s economy where consumers have access to a wider variety of products and services via the Internet.

  • Operating System Upgrades

Technology has had a dramatic impact on the way business is conducted. Good franchisors are constantly looking for ways to improve their operating systems and keep their franchisees competitive.

  • Ongoing Training

As new products and technology are introduced, franchisees and their staff need to be trained. A good franchisor has a programme for ongoing training in place and is committed to providing the necessary training or has systems to keep everyone in the system current.

  • Field Support

A measure of the value to you of the franchisor’s field support is the credibility of those on the franchisor’s staff who are providing the support. Talk with franchisees currently in the system to determine whether their field support consultant has experience in the business and is knowledgeable about general business practices and whether they find the visits of their field staff contribute to the growth of their business.

  • Marketing Support

An experienced and professional marketing staff is a plus for any franchisor. Ask what type of market research is conducted, how often new marketing programmes are developed and if localised marketing materials are available from the franchisor.

  • Meetings and Conventions

An important reason for joining a franchise system is to benefit from being part of a network. A good franchisor uses conventions and meetings to introduce new products and marketing programmes, to update franchisees on the ‘state of the union’ and to conduct training. Talk with current franchisees to determine whether the franchisor’s meetings and conventions have provided value.

To summarise, the royalty payments of all franchisees are used by good franchisors to provide the quality of support that individual franchisees can’t afford on their own and to help improve the performance of the entire system. So be sure to determine which franchisor will provide the services you really want and need.

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