The ongoing fees that a franchisee pays to a franchiser is generally known as franchise royalty. There are different types of royalties. While the most common one is percentage on sales, the other type is a flat fee paid periodically. Franchise Royalty is paid for the continuous support and the right to use the franchisers brand and do the business as per the guidelines laid. The entire franchise system, works on the basic fundamental of getting recurring revenue from the franchisees, which is then used to build the business and brand.
Franchise Royalty is different from franchise fees. Most times, Franchise fee is just the initial amount that the franchisee pays to take up the franchise and then pays a renewal fees for renewal of the franchise agreement. However, franchise royalty, in addition is the component of fee that is paid in co-relation to the business done. Hence in some way, the profitability of the business is shared with the franchisor through franchise royalty.
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