What is the royalty payment based on? How much will I have to pay each month?
There are three main types of royalty rates that are usually used by franchisors to asses this fee. They are net sales, gross sales, and flat rate fees. The most common is net sales. The franchisor will normally take about five to eight percent of your monthly net sales as a royalty fee. Around six to ten percent of a franchisee’s gross sales are taken by the franchisor if this is the royalty method used. This is because the gross sales will naturally be higher than the net sales. The last method, flat rate, is when a franchisor collects one set rate every month, no matter how much money the franchisee makes that month. Although these are the most common methods of royalty fee, a franchise may also develop its own way of assessing this charge that is most conducive to the company’s success.
