In Today’s Newsletter:

• 💰 What’s the Deal with Royalties & Franchise Fees

• 💈 Breakdown of the Sport Clips Franchise Opportunity

• 📊 3 Franchise Industry News Headlines

What’s the Deal…

_{What’s the Deal with Royalties & Franchise Fees?}

Fees suck. Nobody wants to pay a royalty, nobody wants to pay a franchise fee. But franchising is a give-and-take industry. You have to give before you take.

The franchisee (franchise owner) gives an upfront franchise fee and an ongoing royalty in exchange for ongoing coaching, training, support, and so on.

So let’s break these 2 costs down.

What’s the Deal with Franchise Fees?

The franchise fee is an initial, one-time payment that a franchisee makes to the franchisor to buy into the franchise. Think of it as a territory fee in a sense as well. This buys the rights to a territory and is your "ticket to the club."

It grants you the right to use the franchisor's established business model, branding, trademarks, and operational support.

This fee also often covers the cost of training, site selection assistance, and the initial marketing package. Essentially, it’s the upfront investment required to start your franchise journey.

Normal Range for Franchise Fees:

Franchise fees vary from brand to brand but, typically, most franchises seem to fall within the $35,000 to $60,000 range. Of course there are exceptions, but generally, they tend to fall within this range.

For multi-unit (multi-location) buyers, additional franchise fees are paid on a per territory basis. The buyer pays an additional (but usually slightly reduced) franchise fee for each additional territory/location.

The “Why” Behind Franchise Fees

Franchise fees serve a few purposes for the franchisor. These fees fund growth, support, and system-wide improvements. These fees supply young franchise brands with the opportunity to scale the business and support franchisees.

Ultimately, though, the main profit center for a franchise should come through royalties. More on that below.

What’s the Deal with Royalties?

While the franchise fee is a one-time payment, royalties are ongoing payments that a franchisee makes to the franchisor.

These are typically calculated as a percentage of the franchisee’s gross revenue or sales and are paid periodically (usually monthly).

Royalties are the main profit center for franchises. This is why the brand became a franchise.

In exchange for ongoing training, coaching, and support, a franchisee pays the royalty.

Normal Range for Royalties:

Royalties typically range from 4% to 9% of a franchisee’s gross sales.

Royalties are almost always based on gross sales (total sales) and are usually paid on a monthly basis, though some brands require weekly payment. Be sure to check the FDD.

More and more franchises are offering a sliding scale royalty as well.

The way these work is you start at, let’s say, a 7% royalty, but, once you hit certain revenue “check points,” that royalty can slide down to lower percentages.

As an example, let’s say $0 - $150k in revenue is 7%. $150k to $750k in revenue is 6%. $750k+ is 5%. So the royalty “slides” from 7% to as little as 5% based on gross revenue numbers.

In these cases, the franchise rewards you for building a bigger business. I’m a huge fan of franchises that offer this royalty model.

How to Think About Franchise Fees & Royalties

Again, nobody wants to pay franchise fees or royalties. But the reason so many people choose to buy a franchise is because of what they get in return for these costs.

When comparing franchise opportunities, my recommendation is not to choose an opportunity based solely on which franchise has the lowest royalty.

Yes, you need to make sure that that franchise (and the industry as a whole) has enough margin for you to pay the royalty while also accomplishing your financial goals.

Duh.

But just because one brand charges an 8% royalty while another franchise offers a 6% royalty doesn’t mean that the latter is a better opportunity.

I would rather pay 8% to a franchise that offers the sun, the moon, and the stars to me in the way of support over a brand that charges 6% but dodges my phone calls like an ex-girlfriend.

-Christian Dadulak, Franchise Advisor

Franchise Deal of the Week

Brand Story: 

Sport Clips is a sports-themed, hair salon franchise opportunity that caters primarily to males. Their services include haircuts, styling, and grooming, all provided in a relaxed, TV-filled environment that showcases live sports. Their “VIP” experience includes the haircut, hair wash and shampoo, and a scalp massage.

By the Numbers:

Minimum Financial Requirements…

(You need to meet these requirements at a minimum to be considered for this franchise)

Net Worth - $400,000

Liquidity - $200,000

Item 7 - Estimated Initial Investment Range

This range typically contains everything to get the business up and running, including the franchise fee and 3 months of working capital

Investment: $276,800 to $463,000

Approximate Down Payment w/ SBA Loan: $55,360 to $92,600 (assuming 20% down)

Fees:

• Royalty: 6%

• Brand Fund: $300 per week or 5% of net sales, whichever is greater

• Franchise Fee: $69,500 ($30,000 for the first store, $24,500 for the second store, $15,000 for the third store - currently they require you to buy the rights to open 3)

Total Locations Open: 1800+

What’s the Deal With Franchising?

• Story #1 - Creating Opportunities Inspires Express Employment Franchisee

• Story #2 - Franchising 2025: The Rise of Multi-Sector Investors

• Story #3 - Fast-Growing Papa Johns Franchisee Talks Turnarounds as Path to Scale

Reply to this newsletter or schedule a meeting with me via the link below…all at no cost to you, ever. All of my help is 100% complimentary - I get paid a referral fee by the franchises if you buy into their brand.