If you are considering the purchase of a franchise or you are already an existing franchisee then one question that you may have relates to your rights as a franchisee and what your continuing royalty obligation is all about. That is‚ what do you get in exchange for paying royalties.
Royalties Represent an On-Going System Fee
As a franchisee – assuming that you select the right franchise system and franchisor – you will be accessing an established business with developed business systems and a recognized brand. That is‚ teh franchisor will be providing you with initial training‚ on-going supervision‚ access to the existing business systems and the improvements that the franchisor makes along the way and to a proteced trademark and brand. In many ways‚ a franchisees on-going royalty obligation should be looked at as a continuing license fee that allows you to remain a part of the system and to benefit (collectively with other franchisees) the systems and its improvements. Royalties represent a very legitimate obligation and the value that you derive will largely be determined by the quality of the franchisor and its franchise systems.
So consider that a franchisees on-going royalty obligation represents an on-going payment and license fee to:
- Benefit‚ on an on-going basis‚ from the business and marketing systems established by the franchisor;
- Compensate the Franchisor‚ on an on-going basis‚ for granting franchisees access to the system;
- To compensate the franchisor for on-going support;
- To compensate the franchisor for maintaining and protecting the trademarks and intellectual property of the system;
- To update and improve the business systems and the products and services associated with the franchise.
A franchisees royalty payment obligation is not a contingent obligation and is not subject to any discretion as to whether or not a franchisee wishes to pay same.
To learn more about royalties and other franchisee obligations (a) Visit our Free Franchiseee University‚ and (b) order a free copy of Charles N. Internicola's book "An Entreprenurs Guide to Buying a Franchise"