Methods of Calculating Royalty Fees in Franchising

investors having a meetingEvery business structure needs bookkeeping to keep track of its expenditure, taxes, and revenue. Starting a bookkeeping service to cater for this need is currently among the best ways to tap into this lucrative opportunity. However, most clients who outsource their bookkeeping only trust well-known brands.

To generate much profit, franchising a bookkeeping service like Supporting Strategies is the perfect solution. The royalty fee is a payment that you will give to your franchisor for using the brand name. Here are the primary methods of calculating the royalty fee:

Percentage of Revenue

This is the simplest and most prevalent method of calculating royalty fees. With the percentage of revenue method, your franchisor will expect you to pay a fraction of your gross income over a specified period. This way, your royalty fee will fluctuate depending on your sales.

Fixed Fees

With this method, the franchisor has a set amount paid on a monthly or weekly basis. This method does not consider the franchisee’s income or sales. There is typically a provision in this type of agreement for the franchisor to adjust the royalty fee. However, it depends on the prevailing financial conditions.

Total Profit Percentage

This method of royalty fee calculation is not common since it is considered unfavorable to franchisees. In total profit percentage, you are required to split your profits with a franchisor at a pre-determined rate. The benefit of this technique is its easy calculation. The standard portions in most franchise agreements are 50/50 and 40/60.

You might come across other methods of calculating your royalty fee. They might be variations of the ones above. Regardless of the technique that your bookkeeping franchisor uses, you can be assured that the profit will be worth your partnership.