Franchise fee, royalty and marketing fee: how to set them

A franchise fee structure usually has three parts: an initial franchise fee paid once on joining, an ongoing royalty paid monthly as a percentage of sales or a fixed amount, and a marketing fee that funds network-level advertising. Set them from the franchisee's unit economics: after all fees, the franchisee must earn a living and recover the investment, and the franchisor must cover the real cost of supporting each unit. Every fee should be tied to something the franchisor delivers, and every fee must appear in the disclosure.

This page explains how we build the fee structure in a franchise package. It gives no "average" fee for Europe: sectors and countries differ too much for an average to help, and every figure in our work comes from your data or from a named source.

The three main payments

Other charges are common: software and booking systems, supplies bought from the franchisor or approved suppliers, refresher training, renewal and transfer fees. List each one in the agreement and in the disclosure.

Building the fee structure step by step

1. Start from the franchisee's P&L

Use the figures from your pilot unit, adjusted to the target market: sales by month, gross margin, wages for a paid manager and staff, market rent, utilities, local taxes, insurance and loan repayments on the opening investment. Leave fees out at this stage. What remains is the unit's profit before fees.

2. Decide what the franchisee must keep

The franchisee is buying a job and an investment. The model should show a profit after fees that pays the owner and repays the investment within a period a bank or investor would accept. We show this as scenarios (weak, expected, strong year), using the pilot range.

3. Price your own costs

On the franchisor side, list what you will spend per franchisee each year: field visits, training, help desk, system and software, product development, management time. The royalty has to cover this with a margin; if it cannot, the network grows into a loss.

4. Choose the royalty form

• Percentage of sales. Moves with the unit's results and aligns both sides. Needs reliable sales reporting and a precise definition of the base: with or without VAT, discounts, delivery platform commissions, gift cards.
• Fixed fee. Predictable for both sides. Suits services with stable volumes or where sales are hard to verify. Weighs heavily on new and weak units.
• Combined. A fixed minimum plus a percentage above a threshold.

5. Set the initial fee

The initial fee should at least cover what you spend to recruit, train and open a new franchisee. If it becomes the franchisor's main income, signing new units pays best and support of existing units turns into a cost to cut.

6. Set the marketing fee and its rules

State in the agreement what the fund is spent on, who decides, and how spending is reported to franchisees. The Dutch Civil Code requires the franchisor to describe the fees, mark-ups and other financial contributions before signing, and franchisees will ask how the money is used.

7. Test the whole package

Put all fees back into the franchisee model and check the scenarios. If the weak-year scenario shows a loss after fees for longer than the franchisee can carry, lower a fee, reduce the investment or change the format.

Disclosure of fees

Fees are one of the core items in every European disclosure regime:

• Sweden. Lag 2006:484 lists information on the fees payable to the franchisor and other financial terms among the minimum written information.
• Netherlands. The franchisor must give, at least four weeks before signing, a description of fees, mark-ups, other financial contributions and required investments, plus, where available to it, financial data on the location or comparable units (Civil Code arts. 7:913–7:914).
• Spain. Art. 62 of Ley 7/1996 requires written information on the content and characteristics of the franchise and the essential terms of the agreement at least 20 days before signing or before any payment.

Payments before the disclosure period ends are a problem in several countries. In France and Spain the information must be delivered before any advance payment as well as before signing, and in the Netherlands the franchisor may not push the candidate to pay or invest during the four weeks. Full list: disclosure rules by country.

Fees and competition law

Royalties and marketing fees are ordinary terms of franchise agreements under EU competition law. What creates problems is control over the franchisee's own prices. Under Regulation (EU) 2022/720 the franchisor may recommend retail prices or set a maximum price; fixing a minimum price takes the agreement outside the block exemption. Supply obligations linked to fees, such as buying all stock from the franchisor, are reviewed under the non-compete rules. Your lawyer frames these clauses in the franchise agreement.

In master franchise deals

When a partner takes the rights for a whole country, fees split into layers: a master fee for the country rights and a development schedule, and a share of the initial fees and royalties the master collects from sub-franchisees. The master needs enough of each royalty to fund local support. See master franchise.

Common mistakes in fee models

• Copying a competitor's percentage. Their margins, format and support costs are different.
• Setting the royalty before the P&L. Then the fee drives the model, and the unit numbers get bent to fit it.
• An undefined royalty base. "Turnover" without a definition leads to disputes over VAT and platform commissions.
• A marketing fund with no reporting. It becomes the first complaint at every franchisee meeting.
• Promising earnings to justify the fee. The EFF Code requires recruitment advertising free of ambiguity and misleading statements; show sourced pilot ranges instead.

For pricing your own products and services, see our pricing strategy guide.

Next step

Send us your unit figures and we will tell you whether your planned fees work: a paid 30-minute consultation costs 100 €, a written review of your fee model from 200 €. The fee structure is part of our franchise development in Europe package.