Is Your Royalty Rate Appropriate?

In our recent bulletin titled How to Determine if Your Initial Franchise Fee is Really Appropriate?, we discussed how to determine an initial franchise fee.

Following the release of that bulletin, several franchisors have asked us if the same considerations apply to setting an appropriate royalty rate.

Some aspects are common to both fees, while others are quite different.

Common considerations include:

1. Because each franchisor is different and, more importantly, because franchisee services differ greatly from one franchisor to another, the appropriate royalty rate is not the same from one franchisor to another.
2. As for the initial franchise fee, the franchisor must also ensure that royalties do not impose an undue burden on the franchisee or pose an undue obstacle to the profitability of the franchised business.