I recently had a conversation with a Franchisee who owns several Hair Cutting Franchise locations.  One of the things he emphasized on is that royalties are the best money he spent in his business.  He specifically said that every time he needs help or a question answered, all he has to do is pick up the phone, and call the Franchise and he receives an instant answer. He attributes that to his success.

I therefore decided to further address the issue of royalties, specifically, so that people who are looking to start a new business or buying an existing business understand the royalties’ structure and the value you get for your money.

Every Franchise has some type of Royalty structure, the most common being a percentage of Gross Sales which a business makes.  There are Franchises that charge a flat fee for royalties and some require their Franchisees to buy product from them at a mark up.  Regardless of what type of Royalty structure a Franchise has, Royalties is how the Franchisor makes their money, thus, the more money their Franchisees make the more money the Franchisor makes. 

Let's review this again, the more money Franchisee makes, the more money Franchisor makes.  It is in the best interest of every Franchise to make sure that their Franchisees are successful, not just because of the money, but also because that success will translate to growth, financial well being and stability of the Franchisor. 

As the Franchise grows, so does it's name and brand and that is always beneficial to it's Franchisees.  Royalties, are not just free money which  Franchise collects.  Franchisors are experts in their fields and in return for these Royalties, they provide services to their Franchisees such as initial and on going training and support, marketing ideas, help with hiring and training of employees, as well as negotiate prices with landlords, suppliers and contractors.  Their goal is to help you succeed; one of the biggest reasons why the Franchise Industry has enjoyed a 95% success rate.  You are in business for yourself but not by yourself.  

Royalties are an investment in your business and Franchisees do get a return on that investment, so don't let royalties scare you away from Franchises, just think about the value and benefits they provide and I think you will find that over time Royalties are the best money you can spend in your business.