Franchise Fee

An upfront payment made to a franchisor for the right to operate a franchised business under its brand and system, separate from the ongoing royalty.

Example

A new franchisee pays a 45,000 franchise fee at signing, on top of the price paid to buy an existing location from a departing owner.

Important

It is a one-time cost distinct from the recurring royalty and marketing-fund obligations that continue for the life of the agreement.

Related terms

• Franchise Royalty — An ongoing fee paid to a franchisor, typically calculated as a percentage of gross revenue, in exchange for continued use of the franchise system and brand.
• Franchise Disclosure Document — A document required in many jurisdictions before a franchise sale, setting out the franchisor's fees, obligations, territory rules, litigation history and the terms governing renewal and resale.

Lessons that explain it

• Franchise royalties and goodwill amortisation both compound quietly over the holding period — Beyond key-person and concentration risk, a small-business purchase carries recurring costs and tax treatment that materially change the price a buyer can justify and the return a seller actually keeps - none of which shows up in a headline SDE multiple. This lesson is general information, not personal tax or legal advice, and rules vary by jurisdiction. (12 min)

All 578 terms in the Investing glossary