Franchise economics live or die on the fee structure. Get it wrong and one side resents every payment for a decade. Get it right and the relationship is sustainable. Here are the five payments and the structures we typically recommend.
1. Initial franchise fee
A one-off payment when the franchise agreement is signed. It covers the franchisor's cost of recruiting, qualifying, and onboarding the franchisee — discovery day, initial training, opening support.
What it buys: brand access, system access, training, opening week support.
Typical range (Australia): AUD 30k–80k for service businesses, AUD 50k–150k for hospitality/retail with significant onboarding. Premium concepts higher.
Common mistake: using the initial fee as a profit centre. If the franchisor needs to "make money on signing," the model is broken.
2. Ongoing royalty
The recurring payment that funds the franchisor's ongoing role — system updates, field support, brand management, technology, governance.
Structure: typically a percentage of franchisee gross revenue, calculated weekly or monthly. Sometimes a flat dollar amount per period, especially for low-revenue concepts.
Typical range: 5–8% of gross for most sectors. Higher (8–12%) in concepts with heavy IP or technology. Lower (3–5%) in high-volume / low-margin sectors.
Why percentage-of-revenue is the norm: it aligns incentives. Franchisor wins when franchisee wins.
3. Marketing fund contribution
A separate contribution — usually 2–4% of gross — that funds brand-level marketing across the network. National campaigns, brand assets, digital infrastructure.
How it differs from royalty: the marketing fund is held on trust for marketing purposes. The Code mandates separate accounting, annual audit, and prescribed permitted uses. Misuse is one of the most common ACCC complaints.
Common structure mistake: bundling the marketing fund with royalty or treating it as general revenue. Don't.
4. Renewal fee
A franchise agreement runs an initial term (usually 5–10 years) with renewal options. The renewal fee is typically smaller than the initial fee — covers re-documentation, system updates, and ongoing onboarding.
Typical range: 30–50% of initial fee. Often capped in the Disclosure Document.
5. Transfer fee
If the franchisee sells their business to a new operator, a transfer fee covers the franchisor's cost of qualifying and training the incoming party.
Typical range: 30–50% of initial fee. Some franchisors don't charge a transfer fee separately, viewing it as a relationship event rather than a revenue moment.
Other payments you'll sometimes see
- Technology fee — recurring, covers POS/SaaS the franchisor mandates
- Training fees — for additional training beyond initial onboarding
- Audit fees — when triggered by performance issues or breach
- Supplier rebates — payments from required suppliers, must be disclosed
Structuring for alignment
Three principles drive durable fee design:
Pay for what you receive
Every fee should map to something the franchisee actually gets. Otherwise, resentment compounds.
Scale with success
Royalty as a percentage of revenue beats a flat fee in almost every case. When the franchisee wins, the franchisor wins.
Ring-fence the marketing fund
It's not yours. Treat it like the trust account it legally is.
Where ABC fits
Fee design is part of the Strategic Consulting work. We model fee structures across the five-year horizon, stress-test them, and present alternatives — not "what feels good" pricing. See the service, or start a conversation.