By definition, Royalty fees are ongoing fees charged by the franchisor for the goodwill, ongoing services and administrative purposes.

The royalty fees are charged periodically at predefined intervals such as monthly, quarterly, yearly and so on; depending on the franchisor. Royalty fee is a key element that is crucial for generating partial income for the franchisor and the franchisor is legally entitled for same. Franchisee pays royalty fees for the use of the proven formulae in operations, ongoing support and the brand name that are the core characters of a business.

Further by paying royalty fees regularly, the franchisee assures renewal of the agreement and enjoys the benefits from the growth of the franchises, increase in number of centres, innovations, adoption of latest technologies by franchisor, which are essential for the business.

· Continuous use of Brand and Goodwill· Consultation and Continued Support· Ongoing Promotion· Innovation and Technology Upgradation· Operations with Proven Ability

What Royalties Cover?

Different ways by which various Franchisors charge Royalty Fees

The most common one is a Fixed Percentage on Total Revenue/Sales, wherein franchisor charges fixed percentage of fee on the total revenues of the business. This is usually ranging from 2%-20% depending on the franchise. This could be further split in to twice a year or more. The annual fee under this method fluctuates and gives benefit to the franchisee of low payment during the years of low sales. At the same time franchisor benefits from higher fees during the years of greater sales.

Different ways by which various Franchisors charge Royalty Fees

There has been a trend of many franchises moving to Fixed Royalty Fee in the recent times. A prefixed amount is decided upon that, it has to be paid annually to the franchisor. The huge benefit of Fixed Royalty Fee is being aware of what the exact fee is, which is usually preferred by both parties. Franchisee, even though has to make the fixed payment during the years of lower revenue, alternatively has the option of not submitting sales report to franchisor for auditing.

Different ways by which various Franchisors charge Royalty Fees

There have been also cases of Fixed Sum Based on Square Footage charged by the franchisors. This method is mostly seen adopted by food and retail chains in USA. As the name suggest the charge of royalty fees is based on the square footage. A franchisee in such case can benefit from a smaller space.

It is a common scenario wherein, the franchisee does not fully understand the necessity of royalty fees as they generally pay a purchase price called franchise fees. This onetime fee is normally much bigger than the royalty fees. However it does not cover the cost incurred for ongoing services delivered to the franchise, and it is important to deduce that the royalty fee is usually charged on the end consumer. It is easy to draw a direct relationship between the franchisor and the consumer under the fixed percentage on total revenue/sales method. It is important to consider the royalty fee as the ongoing investment that any business would need, as the franchisor mostly invests the same to strengthen the brand, in research and development, expansion and in exploring better opportunities. Many a time promotions such as online are also carried on by the franchisor, cost of which cannot be directly shared by individual franchises, costs for such is appropriated with royalty fees. Hence it is important to pay royalty fees for the benefit of both the franchisee and the franchisor.

Indian Institute of Hardware and Technology (IIHT) has adopted franchise business model and adheres to international standards of operation. IIHT Technologies has a high repute for its world class delivery of services through its franchises across the Globe. IIHT believes in knowledge sharing about all the industries it caters to, i.e. Education, Information Technology and Franchise Business and proffers information about the same. For more information please visit http://www.iihttechnologies.com/.

Corporate Headquarters#15,Sri Lakshmi Complex, 4th Floor, St. Marks Road, Bangalore - 560 001. India

Tel: 91 80 6160 4545 e-mail: franchise@iihttechnologies.com web: http://www.iihttechnologies.com/