How Franchise Fees (really) work - and who benefits most
If you’ve started exploring franchise opportunities, you’ve probably seen numbers like these:
Franchise Fee: $40,000
Royalty Fee: 6% of gross revenue
Marketing Fund: 1–2% of gross revenue
These costs are usually framed as the “price of entry” into a proven system. But what most prospective franchisees don’t realize is how these fees shape incentives — and not always in your favor.
The Franchise Fee: A One-Time Transaction with Long-Term Impact
The franchise fee is often described as covering training, onboarding, and the right to use the brand. But here’s the problem:
The franchisor earns this fee whether you succeed or fail.
That creates a powerful incentive to sell more territories — even if those markets are oversaturated, poorly supported, or lack the conditions for success. When the franchise fee becomes a revenue stream instead of a barrier to ensure fit, you get franchise systems that grow fast on paper… and collapse in reality.
And Then Come the Add-On Fees…
In some systems — including one I operated — the franchise fee didn’t actually cover all the essentials. Despite paying tens of thousands upfront, franchisees were still required to pay additional fees for:
Grand opening support (launch marketing, signage, and local event planning)
Pre-opening training specific to the launch phase
Technology setup and onboarding materials
Site visits that were required before opening
These extra costs can catch new franchisees off guard — and quickly add thousands to the true cost of getting open.
If the franchise fee is marketed as covering onboarding and launch, why are these basics broken out and billed separately?
This “unbundling” of essential services suggests a franchisor more focused on maximizing short-term revenue than setting up franchisees for long-term success. It’s a practice that not only inflates your upfront investment but also raises important questions about alignment.
Before signing, always ask for a detailed, itemized breakdown of what is and isn’t included in the franchise fee — and what additional charges you should expect before you can open your doors.
Royalty Fees: Ongoing Revenue, but Not Always Aligned
Most franchisors collect royalties based on gross revenue, not profit. That means:
They make money when you do more sales
They don’t share the burden of high expenses, staffing issues, or rent
They’re incentivized to prioritize growth — even when it might not be sustainable
In a strong system, royalties fund ongoing support, training, innovation, and corporate services that actually help you grow. But in weaker systems, you’re often paying royalties to a franchisor that’s offering little in return — while still expecting full compliance.
Marketing Fees: Another Layer of Complexity
Many franchisors charge 1–2% of your revenue for a national or regional marketing fund. But that money doesn’t always trickle back to your location.
You may still be expected to:
Fund your own local marketing
Hire local agencies to run digital ads
Purchase materials or creative assets that weren’t included
Ask to see examples of how marketing fund dollars have been spent — and how much control you’ll have over your local strategy.
So… Who Really Benefits from Franchise Fees?
If the system is transparent, well-run, and committed to franchisee success, everyone wins. The franchisor earns recurring revenue and builds brand equity, while franchisees receive tools, training, and guidance that justify the cost.
But in too many systems, the structure looks like this:
The franchisor gets paid whether you succeed or not
They scale by collecting fees, not by helping units perform
You bear all the downside — with limited recourse
The Bottom Line
Franchise fees aren’t just startup costs — they’re a window into the franchisor’s business model. Before you sign anything, ask:
What’s actually included in the franchise fee — and what isn’t?
Are there extra charges for launch support, training, or required services?
Does the franchisor make more money from selling new units… or helping existing ones succeed?
Because in a well-aligned system, fees fuel mutual success.
But when fees are just a revenue stream — you’re not buying into a system. You’re buying into a sales machine.
