A royalty fee is an ongoing fee that a franchisee pays to the franchisor for the duration of the franchise agreement. It is usually paid weekly, monthly, or quarterly, and is typically calculated as a percentage of gross sales. The royalty fee is meant to be a profit center for franchisors and is payment to use the franchisors brand and intellectual property. It also covers the costs of ongoing training, support, coaching for the franchisees business, and innovation. The percentage of the royalty fee varies depending on the type of franchise business, but it typically ranges from 4% to 12% or more of the franchisees gross sales. The franchisor usually collects the royalty fee on a monthly basis.

The royalty fee is different from the initial franchise fee, which is a one-time payment made by the franchisee to the franchisor when signing the franchise agreement. The initial franchise fee gives the franchisee the right to use the franchisors brand, trademarks, systems, and support. The franchisor usually discloses the initial franchise fee in Item 5 of the Franchise Disclosure Document (FDD).

Franchisees pay the royalty fee to the f...