What are franchise fees, and what do franchisees receive in return for paying them?
Technically, a “franchise fee” is the upfront cost associated with obtaining use of the franchisor’s mark (its name/logo/mark) as well as numerous sundry items such as initial training, set-up, and so on. In other words, the franchise fee is the initial cost paid by the franchisee to join the system.
Now, some may refer to “ongoing fees” as franchise fees, but those are rightfully termed “royalty fees”. The “royalty” is paid (usually on a monthly basis) either as a flat fee or a percentage of sales. Almost always there is an ongoing (royalty) fee paid to the franchisor, and hopefully there is real value in ongoing support services received in return. The franchisor’s offering circular describes the nature of the fees as well as what services (or items) the franchisor is obligating itself to in return for the fees paid.
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