Do you know how royalties play a vital role as the dominant cash flow stream for franchise organizations? And are you a current or aspiring franchisee or simply curious about the financial side of franchising? This episode is for you! 

Welcome back to another exciting episode of the Franchise My Business podcast hosted by Kevin Oldham. In today’s episode, we will be exploring the fascinating world of franchising and the complex details of generating income within this business model.

Kevin focuses on the financial aspects of franchising, specifically discussing initial franchise fees, royalties, marketing funds, and rebates. Kevin shares his wealth of knowledge and experience, analyzing how these income streams should be approached and how they contribute to the success of both the franchisor and the franchisee.

Tune in and gain valuable insights into maximizing your franchise’s potential, making informed financial decisions, and achieving long-term success. Let’s dive in!

HIGHLIGHTS

Cracking the Code: Understanding the True Value of Franchise Fees – Kevin Oldham

“Initial franchise fees. The way that I think about them is it’s a value exchange from the franchise to the franchisor. First of all, showing their commitment to investing in the business. Nothing in life is free. But more importantly, it’s a value exchange, so that the franchisor can deploy the resources necessary to get that franchisee up and running. So those maybe things like resource allocation internally, time, people, all sorts of things. I have always been mentored and have then mentored others to look at this as a cost recovery mechanism. It should not be something that is a main source of income for the organization.I believe and will probably go to my grave believing that it should be a cost recovery mechanism to help that new franchisee get up and running.”

Navigating the Role of Royalties in Franchise Success – Kevin Oldham

“Royalties, this is probably the one that makes the most sense for you to focus on. This is basically the dominant cash flow stream in most franchise organizations, if not all. You’ve got to look at what makes the most sense for you. Also, what makes the most sense for the business model. This is where it’s super important to get dialed in on your prototypes and whatnot to see. Hey, if I were to back out a 5 to 7% or whatever percentage royalty you’re going to be charging, if I were to back this out, does this business model still thrive on its own? Can it still be profitable for an owner operator or an absentee operator? And do the math. Again, look at what the market is doing, not that you have to follow what they do, but you can use it as a way that if you’re Flying blind and you have no idea what royalties should be in your industry. It’s a good way to go and vet them and determine whether to plug them into your model”

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