Royalty fees in franchising are ongoing payments that a franchisee makes to the franchisor. Beans & Brews Coffeehouse, the rapidly growing drive-thru coffee franchise known for its High-Altitude Roasting™ and welcoming vibe, is ready to help you understand how royalty fees work and why they’re important.
Franchise Royalty Fee Basics
There are many different types of royalty fees, but the fee is usually a percentage of the franchisee’s gross sales or revenue. They can also be a flat fee, but a percentage-based model is more common because it scales with the franchise’s performance. Royalty fees ensure that the franchisee benefits from the franchisor’s continued efforts to maintain and enhance the brand’s reputation and success.
How Much are Royalty Fees?
The percentage of earnings that go toward royalty fees varies by franchise. The average franchise royalty fees range from 4% to 12% of weekly gross sales. Royalty fee details are laid out in the franchise disclosure document (FDD). Royalty fees typically keep pace with inflation, according to a report by CNBC. For example, McDonald’s recently raised its royalty fee for new locations for the first time in three decades to bring it in line with other quick-service competitors.
Understanding the fee structure and how it impacts your profitability is crucial for effective financial planning and management. Beans & Brews Coffeehouse’s royalty fees are 5.5% of weekly gross revenue. The average amount of royalty fees paid by 19 locations in 2023 was $44,396. These 19 locations had an average net income of $207,728.* Net Income is the net sales after royalty fees, advertising contributions, and the costs of goods sold, labor, and rent.
Benefits of Franchise Royalty Fees
The primary purpose of royalty fees is to compensate the franchisor for their ongoing support and services. Franchisors provide training programs, operational assistance, and research and development. The fee also grants you the right to use the franchisor’s established brand name and business systems.
Paying royalty fees in franchising is not just an obligation but an investment in your business’s success and an integral component of your coffee shop startup costs.
Here is how royalty fees impact your business:
- Brand strength: By contributing to royalty fees, you help maintain the strength of the brand. A strong brand attracts customers and instills trust, making it easier to drive sales and grow your business. Beans & Brews opened its first location in 1993 and now has 80 locations open with 112 under development.
- Operational support: The royalty fee funds support services, such as operational guidance, troubleshooting, and business advice. Having a guide is especially crucial for franchisees who do not have experience in their industry. From site selection and beyond, Beans & Brews is fully invested in supporting you throughout your franchising career.
- Research and development: Continuous product and service innovation keeps the brand competitive. Royalty fees enable the franchisor to invest in research and development, ensuring your business stays ahead of market trends and consumer preferences.
Beans & Brews is always looking for ways to enhance our menu and stay a step ahead of the competition. We recently launched a line of plant-based energy drinks to provide customers with a coffee alternative, and we regularly add seasonal items to the mix, such as our Pumpkin Pie Latte in the fall.
- Training and education: Franchisors provide comprehensive training programs funded by royalty fees. This ongoing education helps you and your staff stay updated on best practices, new products, and operational improvements. At Beans & Brews, you’ll participate in 16 hours of classroom training and up to 120 hours of on-the-job training before you open your location.
“From the very, very beginning, from reading over the franchise agreement to choosing out your color, model, and location, I had 100% support,” said Melanie Jorgensen, a Beans & Brews franchisee.
Bring Mountain-Roasted Coffee to Your Community
If you have a passion for coffee and community, Beans & Brews has single- and multi-unit opportunities available across the U.S. Beans & Brews’ franchisees come from diverse backgrounds, including many venturing into business ownership for the first time. Our well-established franchise system and robust support enable newcomers to thrive.
Get started to learn more about opening a Beans & Brews in your area.
*See FDD for details.
