Are a franchisor’s management service fees always charged as a percentage of gross sales?

It is common for management service fees to be charged as a percentage of turnover. The actual percentage will depend on the nature of the particular franchise, although in many cases the percentage will often be somewhere between 4-10 per cent, with the frequency of payments varying from weekly, monthly, quarterly or, very rarely, annually.In some cases, a franchisor may ask for a guaranteed management service fee, meaning that a franchisee will have to pay the higher of an amount detailed in the franchise agreement and an amount calculated using the relevant percentage of turnover. For example, the greater of £1,000 per month or six per cent of turnover for that month. The franchisee should also consider whether the management service fee includes any other fees that may be payable to the franchisor, such as a contribution towards marketing. The important issue for the franchisee will be whether he or she is happy that the management service fee will not reduce profitability, when taken into consideration with other costs that may be payable in relation to the franchise business, to an extent that the franchise business is an unworkable proposition.