If you’re an entrepreneur thinking of buying into a franchise operation, you’ve done your research on the multiple benefits of joining an established organization with winning ways. You know, for instance, that you’ll get instant recognition and acceptance from customers and clients due to the brand you’ll share. You’ll also receive expert training and guidance and ongoing support from the franchisor. You’ll learn the processes and procedures that will help you become as successful with that shared brand as the corporate franchisor seems to be.
In exchange for the power of that brand, brains, and additional benefits, you’ll pay a royalty fee, even when you start an insurance franchise. What’s that all about, you ask?
Read on.
What Is a Royalty Fee in Franchising?
Whether you’re selling hamburgers, house paint, or homeowners insurance through a franchise system, those products and services were founded by your franchisor. That’s why the founding corporation receives royalty payments from entrepreneurs like you who benefit from that established brand and the built-in loyalty of customers already familiar with that brand.
The franchise royalty fee is an ongoing financial assessment from your franchisor. Based on your gross sales or other metrics of success, you might be responsible for paying it weekly, monthly, quarterly, or even annually. This fee is part of what you must come to understand when exploring how to invest in a franchise.
The details of how these fees are assessed and when you must pay them should be clearly spelled out by the company representatives with whom you discuss the possibility of becoming a franchisee. You will also get the full written explanation as part of your franchising agreement, the contract you sign to begin your business relationship with the franchisor.
How Are Royalty Fees Calculated?
The specifics will vary depending on the business and its operations, but the most common way of assessing your franchise royalty fee is as a percentage of your gross sales. The average franchise royalty fee tends to be around 4% to 12% of product or service sales.
Some franchisors charge an average franchise fee percentage that decreases as your sales increase. The idea here is that while you’ll pay more in royalty fees when business is booming, you’ll keep a greater share of those sales because the royalty fee percentage will drop. In that way, this approach is an obvious motivational tool.
Other franchisors might instead charge a flat fee in lieu of a percentage of sales. Sometimes, this is an upfront annual charge based on their appraisal of what they will do in business that year. Or you could be charged a percentage of realized or net profits.
Obviously, the total amount collected, however it’s assessed, will be higher if you own a luxury hotel that’s part of a global brand in San Francisco than if your franchise operation is a commercial window washing service in Duluth.
The bottom line is that there are various ways of calculating and charging these fees, and they impact how much money it really costs to start an insurance company or other business. So, discuss the specifics with your franchisor representative long before you make a final decision or sign anything.
Factors Affecting Royalty Rates
The biggest factor affecting what you’ll pay in average franchise fees for royalties is the success of your business. Take this into consideration: If you pay twice as much for franchise royalties in year two as you paid in year one, that’s actually good news. It means sales are up considerably, and your business is taking off.
Such factors as the strength of the local and national economy, your customers’ brand recognition and acceptance, the industry you’re in, and your location can also influence how well you do, and therefore what your average royalty franchise fees will be.
Benefits of Royalty Fees for Franchisees
However they’re assessed, your typical franchise royalty fees help pay for the organizational expertise and ongoing support you’ll receive.
They’re also based on the strength of your company brand, which should help spur the sales or services you offer. After all, if your business is a known entity to people who’ve never even visited your city or state, that’s an important benefit for you. It means you made the right decision when deciding which franchise system to join.
Benefits of Royalty Fees for Franchisors (and You)
For one thing, your royalty fees keep the corporation strong and allow it to continue developing additional franchise operations across its state, region, country, or even around the globe. That’s not just a benefit for the franchisor but a leading advantage for you as well. Every location your customers see serves as a sort of billboard, increasing their familiarity with your business when you connect with them.
Another shared benefit of your royalty fee is that this corporate revenue stream can — and should — be used to further promote the franchisor’s business (and yours) in ads, social media, and other marketing efforts and materials.
Ask Us About Average Franchise Royalty Fees (and Everything Else)
If you’re an entrepreneur in search of prime but affordable franchising opportunities, you can’t do better than joining the Freeway Insurance franchise system. We’ve got a fair and advantageous franchise royalty fee structure we’d love to discuss and numerous other reasons you’ll get ahead quickly. You’ll be your own boss but within a system that will help you thrive.
Freeway Insurance is an easy franchise to open, even as a first-time business owner. It’s one of the largest and most reputable personal lines insurance companies in the nation. We have franchises from coast to coast and a name people know and respect.
Take advantage of our top-tier industry training, expert guidance and ongoing support. We’ll help you get the education and certifications you need, based on the state in which you live, and access to the customer base that will help your business grow quickly and steadily.
Another Freeway advantage is that you don’t have to invest in a formidable workforce and all of those associated costs. You can operate as a low employee count business — probably just you, at first.
So, ask us about our royalty fees, our low cost of entry, and anything else.
Contact us online or call us at (877) 822-3024 to speak to a franchise representative today.
We’re eager to welcome you to the forward-moving team at Freeway.
