Royalty Fees: What You Don’t Know Can Hurt You

All franchise systems are not alike. Owning a franchise business of any kind will have some things in common, but there are variables that make each franchise business opportunity unique. One area of great diversity is in the fee structure, and it’s critical to understand what this means for your bottom line when you are evaluating franchise opportunities. How royalty fees are calculated can be the difference between seeing a healthy profit and just breaking even.

Flat royalty fees let you keep your increasing profits as the business grows

Home Franchise Concepts (HFC) believes that our franchise owners should benefit directly from the efforts they put into their business by being able to keep more of what they make. For this reason, royalty fees within the HFC family of brands, including Budget Blinds®, Tailored Living® and Concrete Craft®, are flat royalty fees.

Building blocks of a strong franchise network

Royalty fees help to keep the franchisor strong and in a position to provide the support necessary to fuel the entire franchise network. Royalty fees are paid by franchisees to the franchisor for the continued use of its trademarked operation. They are an investment by every franchisee back into the franchise system to fund operating costs involved with growing the brand, including business technology advances, strengthening vendor alliance relations, enhanced training and ongoing, expanded support. Franchise owners can focus on sales, knowing they are undergirded by a strong infrastructure dedicated to their success. The Franchise Disclosure Document (FDD) will spell out everything you need to know about fees, costs and royalties. Make sure you understand how these fees work and especially how they relate to your future income.

Types of royalty fee structures

As mentioned, HFC’s franchise brands are structured with flat royalty fees. Your fees are not tied to monthly, quarterly or annual sales, so you don’t wonder how much you’ll owe as your business grows and you make more sales. Contrast this to other types of royalty fee structures and you’ll see the benefit of flat fees.

Two common franchise royalty fee structures that tie payments to your sales are fixed percentage of gross sales and increasing or decreasing percentage of sales (also called a sliding percentage scale).

  • A fixed percentage of gross sales. The more you make, the more you pay to the franchisor. Typical ranges for percentage fees are 4.6 to 12.5 percent (International Franchise Association), without consideration to the costs of doing business; fees tie to gross sales, not net.
  • Increasing or decreasing percentage of sales. Here you have royalty fees changing every month or quarter, based on your level of sales. Sell a lot, it moves; sell a little, it moves.

In each case, you may not be able to get a handle on exactly what your projected royalty fees will be, or on how much of your profit you get to keep. With flat royalty fees, you know each month exactly what your costs will be. Even as your sales increase the fee remains the same, and you watch your profit margin go up.

Flat royalty fees are just one way that HFC is dedicated to your success as a franchise business owner

HFC’s winning business models

In each of HFC’s business models, the royalty fee is a flat fee, ensuring that a franchise owner knows exactly what their franchise costs will be each month. Additionally, new franchisees start with a tiered plan of graduated royalty fees, having a “grace period” of two years to grow their business before they reach the full flat royalty fee amount.

Flat royalty fees are just one piece of a franchise puzzle, and HFC’s franchise opportunities offer so much more that makes any of their business models a good choice.

  • Low initial fees, low overhead
  • In-depth training and ongoing support from dedicated support teams
  • High-quality products through strong vendor alliance programs, surpassing the competition in pricing and versatility
  • Nationally-known brands with solid reputations for exceptional quality and service
  • National advertising and coordinated local area marketing tools and strategies
  • Extensive social media, including Facebook, Pinterest, Twitter and Instagram, as well as TV, radio and print
  • Discounts for qualified veterans

 

Budget Blinds is the #1 window coverings franchise in the nation. You consult with homeowners and businesses to provide expert advice, quality products, and superior customer service for all types of window coverings, including blinds, shutters, shades, drapes and more.

Tailored Living is the largest home organization franchise in North America, offering some of today’s most highly sought-after services such as in-home organization systems and custom storage solutions, along with garage storage and custom flooring.

Concrete Craft is the world’s only decorative concrete franchise. We use proprietary products and techniques to turn ordinary concrete into works of art with stained, stamped and resurfaced concrete, for residential and commercial, interior and exterior surfaces, including walkways, patios, driveways, pool decks and more.

If you’re considering becoming a franchise business owner, the fee structure is an important factor in your final decision. Call 1-800-420-5374 today to talk to a franchise licensing advisor, or go online to Home Franchise Concepts to investigate the possibilities of becoming a business owner within a franchise network that puts no limits on how much you can make!

If you’re a veteran, HFC offers substantial discounts to assist you with becoming a franchise business owner. Click here to learn more.

By |2018-11-16T23:06:08+00:00May 24th, 2018|Be Your Own Boss, Uncategorized|