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The basics of franchise royalty fees

A person who wants to start a business and is considering buying a franchise in Georgia needs to understand the concept of royalty fees. These are ongoing payments that he or she will have to make to the parent company, known as a franchiser. According to Entrepreneur, these fees allow the franchiser to make an income from the deal, and almost all companies of this type have them. They are typically a percentage of gross sales revenue for the specified period, which may be weekly or monthly.

The concern for a potential business owner is whether the costs are worth it. After all, they can range up to 50 percent, although it is more common for them to be below 10 percent. Figuring the revenue that the average franchise from that company makes after expenses are deducted is really the only way to decide how much the fees may be. However, this may just be a basic estimate if the business is not in operation yet.

NASDAQ reported some other advantages that should be considered when evaluating royalty fees. It is important for people to keep in mind that they are what keeps the business going. These fees allow the parent company to develop new products and ideas that then get passed on. They also fund staffing, research and training programs, and enable franchisees to get more from their business.

It may seem as if writing a large check each week or month is not worth it because of how much of the profit goes out the door. In reality, though, that money is an investment going back into the business. It ensures a future and stability for the franchise so everyone in the company can continue to be successful and earn higher revenues. 

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