How Should Franchise Fees Be Structured?

Choosing the right franchise fee structure is one of the most important decisions when turning your business into a franchise. It is more than simply selecting numbers. A well-designed fee model supports the sustainability of your franchise network, ensures fairness for franchisees, and provides the financial foundation to deliver ongoing support.

The best fee structures strike a balance between profitability and value. When done correctly, fees become an investment for both franchisor and franchisee, creating a partnership that grows together rather than one side carrying the burden.

What types of franchise fees are common?

Franchise systems generally include a combination of upfront and ongoing fees. Each serves a specific purpose and must be disclosed clearly under the Australian Franchising Code of Conduct.

Initial franchise fee
This one-time payment is made when a new franchisee joins the network. It typically covers the costs of onboarding, initial training, and access to the franchisor’s systems, branding, and intellectual property.

Ongoing royalties
Royalties are the franchisor’s primary source of recurring revenue. Most franchisors charge a percentage of the franchisee’s gross sales, although some use fixed weekly or monthly fees. Royalties fund ongoing support, marketing updates, system improvements, and field assistance.

Marketing and advertising contributions
These fees are pooled into a marketing fund used for brand-wide advertising and promotional campaigns. They are usually calculated as a percentage of franchisee revenue or a fixed amount per month. Transparency in how this fund is spent is critical for maintaining franchisee trust.

Documentation or legal fees
Franchise agreements and disclosure documents must comply with Australian law. The Code requires these fees to be fixed, disclosed, and reasonable. Many franchisors include them in their overall franchise setup package.

Renewal, transfer, or training fees
Additional charges may apply for renewal terms, ownership transfers, or advanced training. Technology or platform fees may also cover the use of software, booking systems, or digital tools that support franchise operations.

Each fee must have a clear purpose and directly relate to the value provided to franchisees.

What factors should influence how you set your franchise fees?

Setting fees is not about guesswork or choosing numbers that seem appealing. It requires careful analysis and an understanding of both financial realities and market expectations.

Cost of delivering value
Your fees should reflect the real cost of the support you provide. This includes initial training, operational assistance, marketing, technology, and innovation. Underpricing may attract franchisees initially but can undermine your ability to deliver on promises.

Franchisee profitability
Franchisees must be able to operate profitably after paying all fees. If ongoing costs are too high, strong performers may leave or potential investors may hesitate. The goal is to create a fair balance where both sides benefit.

Market benchmarks
Research comparable franchise systems within your industry. Align your fees to remain competitive while ensuring your network remains financially sustainable. Prospective franchisees often compare systems based on total cost and support value.

Scalability and incentives
Consider how your fees impact long-term growth. Some franchisors introduce performance incentives or tiered rates that reward high achievers. This approach encourages network-wide success and loyalty.

Transparency and fairness
Openly communicating what each fee covers builds confidence during recruitment. Franchisees should understand exactly how their investment contributes to the network’s growth and support.

How can you customise fees by franchisee or territory?

Not every franchisee or location is the same, so a flexible approach can help you cater to different markets and capabilities. Customisation allows you to scale inclusively while maintaining fairness.

Tiered packages
Offer different entry levels, such as smaller territories with lower fees and larger premium regions with higher fees. This makes the opportunity accessible to more candidates.

Performance incentives
Reward strong performers with reduced royalties or marketing credits once they reach specific milestones. This approach fosters motivation and recognises excellence.

Fixed and variable mixes
Some franchisors blend a fixed fee with a variable royalty based on revenue. This structure stabilises cash flow for the franchisor while allowing franchisees to scale without constant increases.

Support-level options
Offer different support levels to match franchisee needs. For instance, a basic package may include standard assistance, while an advanced package provides additional marketing or administrative support at a higher rate.

These customisations help ensure your fee structure aligns with your network’s diversity while keeping it transparent and easy to manage.

How should franchise fees be communicated and documented?

Clarity is vital in building trust and avoiding disputes. Every fee must be detailed in your disclosure document and franchise agreement, including how it is calculated, when it is payable, and what it covers.

During recruitment, take time to explain each fee in plain language. Outline how funds are used, what value franchisees receive in return, and what processes are in place for reviewing or adjusting fees over time.

It is also important to provide regular reporting for marketing or technology funds. When franchisees see clear evidence that their contributions are being reinvested for the benefit of the network, confidence in the system increases.

If fees change in the future, always give adequate notice and communicate the reasons behind the adjustment. Transparency and fairness are essential to long-term success.

How can a franchisor balance affordability and profitability?

The ideal fee structure supports your operational needs without discouraging potential franchisees. To find this balance, model different scenarios to understand how each fee impacts both your revenue and franchisee returns.

Conduct profitability testing by simulating how your typical franchisee would perform under various fee levels. This process ensures that franchisees can achieve healthy margins while you maintain adequate income to provide training, innovation, and support.

TMPlus helps business owners build financial models that demonstrate viability for both franchisor and franchisee. These models are a key part of the franchise development process and form the basis for transparent, evidence-based fee decisions.

How does TMPlus help businesses structure franchise fees effectively?

At TMPlus | Tereza Murray Franchising, we work with Australian business owners to design franchise fee frameworks that are transparent, fair, and commercially viable. Our team helps you determine how to structure fees that reflect the value you provide and meet market expectations.

We guide you through the entire process, from benchmarking your industry to modelling franchisee profitability. As part of our complete franchise development package, we also handle the documentation of your fee structure, ensuring it complies with Australian franchising regulations.

Our goal is to create systems that support long-term sustainability. By designing fee structures that balance reward and responsibility, TMPlus helps franchisors attract quality franchise partners and build networks that last.

Learn more at www.tmplus.com.au.