Franchisees need to dismiss the notion that ‘royalty fees’ are an extra payment coming out of their pocket; they are a part of the process of partaking in the franchise system. It should be looked upon as the Franchisor’s share in profits derived from the consumer. The Franchisee gathers the royalty fee sum from the consumer along with the rest of the funds that keep the whole enterprise going.
The royalty fee is another aspect of the business and no business would be in business if they were not making their money from the consumer. The consumer pays for the Franchisee’s overhead, costs of sales, salaries, and of course the profit. It all stems back to satisfying your consumer who ultimately pays for the business to run.
The Franchisee should be happy to contribute back into the system that feeds them. A Franchisee should know that a stable, dominant, and flourishing Franchisor will only make the ‘name’ of the franchise stronger creating more of a stir in the business and thus generating more potential consumers. If the root of your business franchise remains strong, the whole system will follow suit including all Franchisees.
The whole dynamic of the business franchise opportunity is founded upon the Franchisor initially providing a desirable product and/or service to the consumer. The appeal of the Franchisee to become a part of the franchise is based on the success of the initial Franchisor. The Franchisee makes a solid business decision to engage into the ‘family’ of the franchise that appealed to them in the first place. The Franchisee carries on the tradition of the Franchisor. It is like an apprenticeship as far as the Franchisee emulating the Franchisor, but thought the Franchisee does have some autonomy, their business still is directly effected by the ‘name’ of the initial Franchisor and this is why they collect a fee.
Considering how much direct and indirect support comes from the Franchisor, royalty fees should not be seen as a monumental strain on the Franchisee. Franchisees always have the opportunity to build upon the root of the franchise, but they must not lose sight of how they have been provided with such an opportunity. Lets think about four elements of a franchise: the brand, operating system, support system, and the Franchisee.
The Brand is the name associated with the product and/or services. To be in a position to provide opportunities to branch out, the Franchisor already has made initial strides for Franchisees to come. The Operating System is tied in with the Brand in the sense that there has been a tradition instilled into society that is recognizable and can be replicated in the same memorable fashion over and over again through Franchisees.
The genesis of the Support System is aided by the presence of more and more stems from the initial Franchisor. The Support System helps the Franchisee them selves develop a memorable and stellar system such as the initial Operating System of the Franchisor. The Franchisee is improving their performance based on being a part of the larger system of the franchise.
If a Franchisee evaluates the importance and contribution of the Brand, Operating, and Support Systems then the royalty fee can really be put into proper perspective. The Franchisee is virtually dependent on the initial and continued success of the franchise that they chose to be a part of. Embracing all these insights should change any negative feeling about paying a royalty fee.
Most royalty fees range from 2% to 10% depending on the nature of the business. So even if you’re a Franchisor who is paying the 10%, you have to consider if the Brand, Operating, and Support systems are feeding at least 10% into the individualized Franchisee’s business, which most likely it is exceeding.
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