2019/07/05(Source: FCオーナーズ運営事務局)
One of the characteristics of franchise management is royalties. This time, we will introduce how to calculate royalties, industry-specific rates, and market rates, as explained by FC Owners.
(1) Overview of Royalties
(2) Types of Royalties
(3) Key Points to Remember Regarding Royalties
(1) Overview of Royalties
Franchise royalties refer to the money (a certain percentage, usually a few percent) paid to the franchisor based on sales when opening a franchise.
(2) Types of Royalties
There are various methods for calculating royalties, but the following three are the main royalty methods:
■ Sales-Based Method
This is the most commonly used method.
A few percent of sales is paid to the franchisor. The percentage varies depending on the industry, ranging from a few percent to 50%. Some franchisors set lower royalty percentages as sales increase.
■ Fixed-Rate System
This system involves paying a fixed amount of royalty each month. As sales increase, the franchisee retains a larger profit. While the amount varies, many franchisors set it at several tens of thousands to 100,000 yen per month.
■ Gross Profit Sharing System
This system is used in convenience store businesses, among others.
Royalties are calculated based on gross profit, typically around 30-70%.
A common point across all systems is that royalties paid to the franchisor are used for product development, advertising, system improvements, etc. As a result, these royalties support each franchisee's customer acquisition, average customer spending, and operational efficiency.
(3) Key Points to Consider Regarding Royalties
When considering opening a franchise, it's easy to focus on whether the royalty is high or low. While there are market rates depending on the industry and business type, choose a franchisor with a royalty rate that you are comfortable with.
Below are some examples of typical royalty rates.
* **Food and Beverage Industry:** Approximately 3% to 10%. Due to the high cost of goods sold, royalties are lower than in other industries.
* **Tutoring Schools:** Approximately 10% to 30%. Because there are no material costs and the business has low operating costs, royalties are higher than in the food and beverage industry.
Royalties vary depending on the type of business. Determine whether the royalty rate is acceptable to you before choosing a franchise business.
■ What is an appropriate royalty rate?
Ultimately, the appropriate royalty rate depends on whether you feel it is commensurate with the brand's value.
Franchise headquarters set franchise fees, royalties, and procurement prices to expand the number of stores while improving the franchise system. Their management policy is "all for one, and one for all."
Based on the above, to avoid regretting your franchise choice, review the materials and consult with FC Owners if you have any questions.
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