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Franchise Royalty Fees: What to Expect

Part of franchise ownership involves paying franchise royalty fees. Learn more about franchise royalties, how they work, how much they can vary, and why they are an essential part of the franchise model.

How Much Is the Franchise Royalty Fee?

The royalty fee is part of the overall cost of a restaurant franchise. This fee is typically calculated as a percentage of your gross sales, and it’s paid regularly to the franchisor. The specific percentage can vary significantly from one franchise opportunity to another.

The exact percentage of the royalty fee can vary based on various factors, including the reputation and success of the franchisor, the type of franchise concept you’re joining, and the level of support and resources provided by the franchisor. On average, royalty fees tend to range from 4% to 12% of gross sales, but they can go higher or lower depending on the circumstances.

Why Do Franchisors Charge Royalty Fees?

You might be wondering why franchises charge this ongoing royalty fee. The answer lies in the benefits you receive as a franchisee. When you invest in a fast-casual dining franchise, you’re not just buying the rights to use a recognized brand name and system; you’re also gaining access to a wealth of resources and support.

Franchisors provide a range of valuable services to help you succeed, including marketing support, training programs, access to suppliers, ongoing research and development, and assistance with site selection and design. The royalty fee helps fund these crucial services and allows the franchisor to maintain and enhance the brand’s overall strength and profitability.

Think of it as a partnership – you pay a percentage of your sales to the franchisor, and, in return, you benefit from their experience, brand recognition, and the collective strength of the entire franchise network.

How Do Royalty Fees Vary?

As mentioned earlier, franchise royalty fees can vary significantly, even among different fast-casual dining brands. Here are a few factors that can influence the variation:

  • Franchise brand: Established and well-known brands may charge higher royalty fees due to the value they bring to the table. Conversely, newer or less recognized franchises might offer lower fees to attract new franchisees.
  • Industry: The type of fast-casual dining concept can also impact royalty fees. For instance, a high-end sushi franchise might charge a different percentage than a pizza chain.
  • Territory: Some franchisors offer exclusive territories, which may come with higher royalty fees to compensate for the limited market size.
  • Support and resources: Franchisors that provide extensive training, marketing, and operational support may charge higher royalty fees to cover these services.

How Royalty Fees Work

Let’s consider an example to illustrate how franchise royalty fees work. Imagine you’re interested in joining a well-established fast-casual burger franchise, and they charge a 6% royalty fee on your gross sales. If your franchise location generates $500,000 in gross sales in a year, you would pay $30,000 (6% of $500,000) annually to the franchisor as a royalty fee.

This fee is a relatively small percentage of your total sales but contributes to the ongoing support and resources you receive from the franchisor, helping you maintain and grow your business over time. Wayback Burgers’ ongoing fees, as listed in our 2023 Franchise Disclosure Document (FDD), include a continuing royalty fee equivalent to 5% of gross sales, excluding sales tax, and an advertising fee of 4% of gross sales, dispersed evenly between national and local marketing campaigns.

Money Well Spent with Wayback Burgers

Franchise fees, including the royalty fee, are a fundamental part of the fast-casual franchise dining model. They vary depending on several factors, but they are a worthwhile investment that allows you to tap into an established brand’s strength and resources.

With Wayback Burgers, you’ll be part of a respected brand that’s been franchising since 2008. We stay on the front lines of technology to make sure our operations stay updated. We have a Wayback Burgers Mobile App to make ordering more convenient for our guests. With smaller storefronts, we help franchisees keep overhead costs lower, and our menu is only part of the appeal. We have nearly 170 locations worldwide, including 150+ franchises in the U.S.

By paying a percentage of your gross sales, you’re not just buying a name – you’re gaining a partner in your journey to success in the fast-casual dining market. So, as you explore franchise opportunities, be sure to carefully consider the royalty fee and what you’ll receive in return. It’s a partnership that can pave the way for a prosperous future in the world of fast-casual dining.

To learn more about franchising opportunities with Wayback Burgers, get started today. Top of Form