How To's

A Beginner’s Guide to Franchise Royalty Fee

Published

2 years ago

May 24, 2023

Franchises. How awesome would it be to own and operate a turn-key business that would save you much effort and years of trial-and-error, right? But here’s the catch: when you delve into the realm of franchises, you’ll inevitably encounter a term that raises eyebrows and piques interest – the franchise royalty fee.

As you sort out the Federal Trade Commission’s franchise rules and choose a franchise you want to operate, it’s also crucial to understand the fees that you need to shell out for your business. This article will discuss the franchise royalty fee and tips on weighing your options.

What is a franchise royalty fee?

A franchise royalty fee is basically a recurring payment made by franchisees to the franchisor as part of the franchise agreement. In short, it is a form of ongoing compensation that you need to pay for continued use of the following:

Franchisor’s brand name
Trademarks
Business systems
Ongoing support

Various franchisors may have different ways of calculating this fee depending on the terms of the agreement and the franchise system. However, most typically calculate it as a percentage of the franchisee’s gross sales or revenue. It can be paid either monthly, quarterly, semi-annually, or annually.

Why is there a need for a franchise royalty fee?

Though it may seem like an added expense for a franchisee, the franchise royalty fee is crucial in making the business system sustainable. Here are a few key reasons why franchise fees are necessary:

Brand Value and Support. Investing in a franchise allows you to gain access to an established brand with a recognized reputation. Consumers are more likely to purchase products or services from an established brand rather than a new one they’re unfamiliar with. The franchise fee allows the franchisor to provide ongoing support, including training, operational guidance, marketing campaigns, and access to intellectual property. It also helps franchisees maintain consistency and uphold the brand’s standards, benefiting both parties.
Business Development. Nothing in business is permanent. For instance, franchisors must upgrade their systems regularly to keep up with current trends and standards. That said, they need to invest a considerable amount of time, effort, and resources in developing and refining their business model. The franchise fee helps recoup these costs and allows the franchisor to expand its franchise network. It also allows them to invest in research and development and continuously improve their operations. This development directly benefits franchise owners as they can take advantage of updated business systems.
Alignment of Interests. As the franchisee operates their business, a portion of their revenue is typically shared with the franchisor through royalty fees. This structure ensures that both parties have a vested interest in the success of the franchise. The franchise fee incentivizes the franchisor to provide ongoing support and resources, while franchisees are motivated to maximize their profits and adhere to the brand’s guidelines.
Training and Support. Starting a new business can be overwhelming, especially for first-time entrepreneurs. The franchise fee helps cover the costs associated with initial training and support from the franchisor. This includes assistance with site selection, lease negotiations, operational guidance, and staff training. By paying the franchise fee, franchisees gain access to the franchisor’s expertise and resources, setting them up for a higher chance of success in their venture.

What is the difference between a franchise fee and a royalty fee?

Now that you know the basics of a franchise royalty fee, it’s vital to understand its difference from the franchise fee. These fees are two distinct components of a franchise agreement.

As mentioned earlier, the franchise royalty fee is an ongoing payment made by the franchisee to the franchisor throughout the duration of the franchise agreement. It helps the franchisor generate revenue and sustain the franchise system while providing ongoing support, marketing, and assistance.

The franchise fee, on the other hand, is a one-time upfront payment made by the franchisee to the franchisor when entering into the franchise agreement. It is essentially a fee for the right to become a franchisee and operate a business under the franchisor’s brand.

Tips on weighing franchise royalty fee options

When evaluating franchise fee options, consider the following tips to make an informed decision:

Explore other franchise opportunities within the same industry or with similar business models. Compare the franchise royalty fees of different options to get an idea of the average range for that type of franchise.
Examine what the franchisor offers in exchange for the franchise royalty fee. Consider the training, support, marketing, brand recognition, and other resources provided. Assess the value of these offerings and determine if they align with your expectations and requirements as a franchisee.
Investigate the franchise’s history, including its success rate, franchisee satisfaction, and any available financial performance data. Look for indications of the franchise’s ability to deliver on its promises and support its franchisees effectively.

How To's

The Rise of Paris Banh Mi Franchise

Published

9 months ago

March 15, 2024

Peter Bolic

Are you gearing up for a new business in 2024? Forget the next big tech start-up -the latest trend in town might be a perfectly toasted baguette. Take Paris Banh Mi Cafe and Bakery, for instance. This Vietnamese sandwich shop is rapidly growing, with locations popping up from coast to coast, from California to Florida.

But what’s the secret behind their success? Explore why the Paris Banh Mi franchise has snowballed in the last two years and be inspired to start your own business .

About Paris Banh Mi

The French baguette was introduced in Vietnam in the mid-19th century when the country was still a part of French Indochina. In the 1950s, Saigon saw the birth of a unique Vietnamese sandwich, “bánh mì,” which quickly became a favorite food of a large part of the population.

The story of Paris Banh Mi started in Orlando, Florida, at 1021 E Colonial Drive in 2019. Hien Tran and Doan Nguyen, a married couple passionate about food, opened the first Paris Banh Mi location. Their concept was simple: bring the delicious flavors of Vietnamese banh mi sandwiches, traditionally baguettes filled with savory meats and pickled vegetables, to a broader audience.

The customers quickly fell in love with the fresh ingredients, bold flavors, and convenient fast-casual setting. Now, Paris Banh Mi Cafe and Bakery promises to bring their customers the best “Baguette Banh Mi” taste.

In just two years, the laid-back cafe and bakery in Florida multiplied into a chain of stores in the county. Today, Paris Banh Mi is serving customers in 46 locations all across the USA. The company plans to expand to 100+ locations by 2026.

Each Paris Banh Mi Cafe and Bakery has a clean and spacious dining area, fast service, friendly staff, and a selection of delicious food and pastries. Take a peek at some of their mouth-watering baguette sandwiches filled with authentic Vietnamese ingredients.

Source: Paris Banh Mi website

For those craving something sweet, the bakery indulges you with a variety of French pastries. Check out their sandwiches, pastries, and beverages on the Paris Banh Mi Cafe and Bakery menu page.

Source: Paris Banh Mi website

Why Own a Paris Banh Mi Franchise

Paris Banh Mi is a franchised quick-service restaurant offering exciting opportunities for aspiring business owners. Many nail salon owners and aspiring entrepreneurs are switching to buying a Paris Banh Mi franchise. The main reasons why they love Paris are:

It opens a great opportunity and is more profitable.
Seamless franchising process and fewer things to worry about
Required low capital to open
Higher end-of-year profits

The benefits extend beyond operational efficiency. Paris Banh Mi boasts a surprisingly low-cost entry point compared to other franchises.

The initial franchise fee is manageable at $60,000. The total investment for opening a Paris Banh Mi can range from $200,000 to $500,000. This amount reflects the option to acquire a pre-existing, equipped location (second generation) for a lower investment cost or a complete build-out from scratch option.

Regardless of the chosen route, the investment is significantly lower than that of building a business from the ground up, making Paris Banh Mi an attractive option for many entrepreneurs.

Licensing Information

Owning a Paris Banh Mi franchise is not just about delicious food! The company is looking for dedicated individuals who can run their restaurant full-time. They will provide a multi-day training program for new franchisees. In addition, Paris Banh Mi offers ongoing support for franchisees, guiding them to make informed decisions and thrive in this exciting industry.

You’re a good fit for a Paris Banh Mi Cafe Bakery franchise if you are:

Passionate about food, especially fresh baguettes and pastries
A self-starter with a proven track record in business
Financially responsible with a focus on results
Ready to fully commit to building the Paris Banh Mi brand

If you have what it takes, don’t hesitate to contact them through the franchise hotlines on their franchise opportunities page.

Conclusion

Buying a restaurant franchise is one of the most attractive routes in the world of franchising. Paris Banh Mi makes owning your own business a lot easier. Forget the high costs and headaches of starting from scratch. Their low investment and comprehensive training program mean you can be your own boss with a delicious product. If you are ready to take a bite out of success, contact Paris Banh Mi today!

How To's

Chick-fil-A Franchising Opportunities in 2024

Published

9 months ago

March 14, 2024

Dan Wesson

Buying a franchise from Chick-fil-A is an excellent money-making and healthy option. The fast-food chain has been serving hungry consumers the most delicious chicken sandwiches unmatched by other fast-food restaurants. Buying a Chick-fil-A franchise means investing in a good business and your future. It also lets you continue the culture behind the popular food chain. Here are Chick-fil-A franchising opportunities that will give you entrepreneurial freedom in 2024.

Company Overview

Founded in 1946 by Truett Cathy, Chick-fil-A is deemed one of the longest-running chicken sandwich chains in the United States. The founder opened his first chain in Hapeville, Georgia, and has become a favorite soul food for many. Truett had worked in restaurants seven times a week and knew the importance of rest. That’s why he vowed to close Chick-fil-A every Sunday. He values rest and worship, so he sets aside one day of the week for his employees—a practice that Chick-fil-A still upholds today.

Chick-fil-A also selects franchisees that uphold their values and passion. The company takes great care in selecting who they do business with, which includes getting to know candidates through a lengthy and intensive selection process. The founder’s vision is to influence the people and communities they serve. Chick-fil-A also seeks franchise candidates in Puerto Rico, Canada, and the United States.

Chick-Fil-A candidates are required to show personal financial integrity and stewardship. They also need to have proven experience in leadership and a strong business acumen. Chick-fil-A ensures that candidates showcase entrepreneurial spirit, a strong character, and a growth mindset. This is to uphold the vision and values that Truett started in 1946.

Franchise Training Details

The initial on-site training programs last three to four weeks. However, the duration and actual location of the training will vary.
The training program primarily covers operational aspects, such as food preparation, service, customer relations, accounting, communications, purchasing, planning, maintenance, policies, management styles, and marketing.
The franchisor may require franchisees to attend various conferences and seminars occasionally. This is on top of the initial training program.
The franchisor may also offer various programs that operators can use in advertising products or hiring staff, which aren’t stipulated in the Franchise Agreement.

Franchise Territory

The franchisor will grant franchisees one Chick-fil-A restaurant at the franchisor’s designated location.
Franchisees will not get exclusive or protected territory, so they may face competition from other operators.

Franchise Obligations and Conditions

Franchisees must devote their time and effort 100% to operating their Chick-fil-A restaurant.
The franchisor only allows franchisees to sell products approved by Chick-fil-A. This also applies to franchisees with a Chick-fil-A-associated food truck.

Franchise Term and Renewal

The franchise term expires on early December 31, the year the agreement is signed or whatever the lease expiration is. Franchisees may apply for one-year extensions unless written notice is given 30 days before the franchise term expires.

Financial Assistance

The franchisor designates locations, leases, and subleases the store’s premises to franchisees. The lease and sublease terms will vary depending on the type of Chick-fil-A restaurant and location.
The franchisor also engages in concession agreements that oversee the utilization of non-traditional satellite unit locations with the proprietors or administrators of said satellite unit spaces.
The franchisor offers extended payment periods for specific pre-opening costs stipulated in the Franchise Agreement. Additionally, the franchisor leases equipment to operators, charging a monthly rental fee based on the fair market rental value established by Chick-fil-A using its singular and exclusive business judgment. It’s important to note that neither the franchisor nor any affiliated entities provide any financing arrangements to operators, either directly or indirectly.

Did You Know?

Here are some fun facts about Chick-fil-A you need to know!

Did you know that Chick-fil-A only uses peanut oil for frying? That’s what makes the chicken its unique flavor! Chick-fil-A is also the single most significant purchaser of peanut oil in the United States. They also believe peanut oil is a healthier option.
The best Chick-fil-A promotional gig was the “First 100,” where the first 100 customers inside a new Chick-fil-A restaurant would get free chicken for a year.
Did you know that the founder, Truett Cathy, invented the chicken sandwich? He worked for a restaurant in Atlanta, and the newly delivered chicken breasts were too big to serve as airline food. He turned this into a meal for the staff.
You can get a free ice cream cone by walking up to the counter and trading your toy when ordering the kid’s meal.

Franchise Cost

Your Investment

Name of Fee	Low	High
Initial Franchise Fee	$10,000	$10,000
Opening Inventory	$13,500	$140,000
First Month’s Rental of Equipment	$750	$5,000
First Month’s Lease/Sublease of Premises	$2,550	$85,500
First Month’s Insurance Expense	$240	$12,000
Additional Funds	$491,345	$2,550,935
ESTIMATED TOTAL	$518,385	$2,803,435

Other Fees

Type of Fee	Amount
Advertising	May vary (a) between 0% to 3.25%, to be determined by Chick-fil-A, as a percentage of gross receipts or (b) by vote of operators in local or regional areas.
Advertising Support and Services Fee	Advertising support and services fees incurred, if any, will vary based upon the support and services offered by the franchisor, and selected and received by the operator; the current in-house blended hourly rate for services is $100; Operator will pay any additional fees, costs and expenses as applicable.
Additional Franchise Fee	$5,000 for each additional Chick-fil-A restaurant business.
Business Services Fee	$300 (monthly).
Rent (Traditional Restaurant)	$2,550 to $85,500 (including where applicable, percentage rent).
Occupancy Charge (Satellite Unit)	Determined under the concession agreement attached as an exhibit to the concession sublicense agreement; currently estimated to range between 4% and 30% of gross receipts.
Food Truck Usage Fee (Food Truck)	Currently $2,100 to $3,100, plus additional fees, costs and expenses.
Food Truck Insurance Fee (Food Truck)	Currently $250 to $450 (monthly).
Insurance	$240 to $12,000 (monthly).
Equipment Rental	Currently $750 to $5,000 (monthly).
Hardware and Software Support; High-Speed Internet Access	$9,500 to $20,000 (annually).
Fines – Minimum Standards and Procedures	Will vary under the circumstances.
Indemnification	Will vary under the circumstances.
Operating Service Charges	Determined by formula.
Credit Cards Fees and Related Processing Fees	Will vary.
Highway Signage	Will vary under circumstances.
Interest on Late Payments	The maximum rate permitted by law, or if none, 1.25% per month.
Cash Handling System Services	$85 to $450 (monthly)
Reimbursement of Cost of Performance	Costs and expenses of performance.
Holdover Liquidated Damages	Double the base rent and percentage rent.

Here are the Chick-fil-A franchise costs:

If you’re looking for another investment opportunity, visit Franchise How’s website for more information.

How To's

Zoom Sewer and Drain Cleaning Franchise Cost

Published

9 months ago

March 12, 2024

Dan Wesson

Taking care of your home’s plumbing system is an essential part of being a homeowner. However, not everyone has the skill and patience to do it, and so franchises such as Zoom Sewer and Drain Cleaning are some of the most lucrative. Here’s what you need to know if you’re thinking of getting it:

Franchise Description

Zoom Sewer and Drain Cleaning provides drain cleaning, maintenance, sewer inspections, repair and replacement services for residential and commercial customers. The business began in 1995 and had been franchising since 2013. They have their headquarters in Norristown, Pennsylvania, and Zoom Franchise Company, LLC is the franchisor.

Training

Training for the franchisee’s principal owner and personnel will be provided by the franchisor or its representatives and agents. Before starting your franchise, Zoom Sewer and Drain Cleaning will require you to complete their training program. It comes in two phases:

Phase 1: 2 to 3 days training at the Franchise Business
Phase2: 2 to 3 days in Norristown, PA

The franchisor may also require you to attend additional training during the length of your term agreement. The franchisor is planning to hold a 2 to 3-day national Zoom Fest yearly. This will be held in Norristown, PA, or any location it designates. They will require franchisees to attend, but their managers will be welcome.

Territory

The franchisor will designate a protected territory where the franchisees will operate their business. Before signing any Franchise Agreement, both the franchisor and the franchisee will agree on a geographic territory.

The franchisor will base the protected territory on contiguous zip codes that will consist of approximately 500,000 individuals. This will be based on the most recent U.S. Census data at the time of signing the franchise agreement. This means that as long as the deal is taking effect, the franchisor or its affiliates will not locate, operate, or grant a franchise for another Zoom Sewer and Drain Cleaning business within the protected territory.

Obligations

The franchisor requires the franchisee or its principal owner to exert every effort to take responsibility for the management of the business. They will do this on a daily basis unless they agree on an alternate arrangement. With the franchisor’s discretion, the franchisee can hire a manager to handle the operations of the business.

Franchisors will also require you to sell products and services that have their approval. On the other hand, franchisees aren’t allowed to sell unauthorized products or services in compliance with the franchise agreement. Franchisees are also not allowed to solicit business outside of the protected territory. They are, however, permitted to serve customers outside of the protected territory as written in the FDD.

Term of Agreement

The initial franchise will take ten years after the signing of the agreement. You can renew the contract for another ten years, for four times, if you continue to meet the requirements.

Financial Assistance

Zoom Sewer and Drain Cleaning doesn’t offer direct or indirect financial assistance to its franchisees. In addition, they will not guarantee a franchisee’s note, lease, or obligation.

Did You Know?

Get to know more about Zoom Sewer and Drain Cleaning before you get that franchise. Here are some facts about the business:

They have very little competition in the niche. Most of their competitors are independent plumbers and contractors
According to the company’s co-founder and COO, Ellen Rohr, this is a recession-resistant business, and the Covid-19 pandemic has proven this
They have a reported $12 million in revenue with 53 employees and 15 franchisees

Your Investment

The table below shows the estimated cost of a Zoom Sewer and Drain Cleaning franchise. Take note that these numbers may change without any prior notice.

Name of Fee	Low	High
Initial Franchise Fee	$35,000	$35,000
Lease	$3,000	$9,000
Leasehold Improvement	$2,000	$40,000
Furniture, Fixtures and Computer System	$7,500	$13,000
Vehicles	$7,000	$9,500
Vehicle Wrap and Design	$4,500	$5,500
Initial Equipment and Inventory of Supplies	$40,000	$50,000
Business Licenses and Permits; Deposits and Pre-Paid Expenses	$0	$5,000
Professional Fees	$500	$3,000
Insurance – Quarterly	$4,000	$6,000
Initial Training Expenses	$500	$3,000
Initial Marketing Expenses	$45,000	$60,000
Additional Funds – 6 months	$50,000	$100,000
ESTIMATED TOTAL	$199,000	$341,000

Other Costs

Type of Fee	Amount
Royalty Fee	5% of Net Sales.
Marketing Fee	Up to 2% of Net Sales. Currently, the franchisor does not charge this fee.
Call Center Fee	Up to $25 per scheduled appointment. Currently, the franchisor does not operate the Call Center or charge a Call Center Fee.
Technology Fee	The then-current Technology Fee; currently $500 per month.
Webpage Development and Optimization Fee	The then-current fee charged by the franchisor’s designated website SEO provider; currently $695 per month.
Additional Location Fee	The then-current Additional Location Fee; currently $2,000.
Transfer Fee	Up to 50% of the then-current Initial Franchise Fee.
Renewal Fee	Up to 25% of the then-current Initial Franchise Fee.
Additional Training and Assistance	Fee and all expenses. Currently $1,000 per day plus travel expenses.
National Conference	Reasonable fees and all expenses.
Testing for Supplier Approval	Reasonable fee.
Interest on Late Payments	Lesser of 1.5% per month or maximum legal rate.
Audit Fee	Cost of audit.
Taxes	Actual cost.
Indemnification	Will vary under circumstances.
Costs and Attorneys’ Fees	Will vary under circumstances.