What ongoing fees will I pay as a franchisee?

Buying into a franchise opportunity comes with ongoing financial commitments that go far beyond the initial fee. Many new franchisees focus on the upfront cost. However, the ongoing fees – management service fees, royalties and marketing contributions – can significantly affect profitability.

Understanding what you are paying for, how franchisors calculate fees and whether they are fixed or percentage-based is crucial before committing. Here, leading franchising experts provide insight into what to expect and what to watch out for…

What is an ongoing franchise fee?

When you buy a franchise, the initial fee is only part of the financial commitment. Most franchisees also pay ongoing fees throughout the life of the agreement.

These are the payments that allow the franchisor to continue supporting the network and developing the brand.

Brian Duckett, former chairman of The Franchising Centre, explains that “ongoing franchise fees are typically management services fees and group marketing fees. Both of these will usually be set as an appropriate percentage of turnover and are payable monthly.”

These fees fund the day-to-day and long-term support a franchisor provides, including training, systems development, marketing and brand protection.

How much should I expect to pay?

UK data suggests there are fairly consistent benchmarks. John Pratt, senior partner at specialist law firm Hamilton Pratt, notes: “The average management fee in the UK [...] is about eight per cent. In addition, a separate marketing levy is usually charged at about two per cent.”

What does a franchisee actually pay these fees for?

The main ongoing fee is often known as a management service fee. Some franchises may also describe it as a royalty, service fee or continuing fee.

John Pratt says that this fee aims to reimburse the franchisor’s costs in relation to “providing the continuing services to the franchisee, which are set out in the franchise agreement.”

He adds that these services usually include “monitoring the performance of the franchisee, continuing research, developing the franchise, organising meetings and so on.” Importantly, this fee is also where the franchisor makes its profit.

Are ongoing franchise fees usually paid monthly?

In most franchise systems, yes. Monthly payments are the norm and most people see them as best practice.

From the franchisor’s perspective, regular payments protect cash flow. From the franchisee’s perspective, smaller, predictable payments are easier to manage.

Duckett also notes that monthly payments help avoid disputes. He says, “A common theme within franchising is that franchisees eventually question the amount they are paying in ongoing fees.“

If the fee was due quarterly or annually, “it would look like an awfully big cheque to sign and would likely raise even more questions.”

Do franchisors always charge management service fees as a percentage of turnover?

Charging a percentage of gross sales is very common, but it is not universal. Vicky Wilkes, head of legal at Aston Villa Football Club, notes that in many franchises the figure is “somewhere between 4–10 per cent.”

However, some agreements include safeguards for the franchisor. Wilkes explains that “in some cases, a franchisor may ask for a guaranteed management service fee,” meaning the franchisee pays the higher of a fixed amount or the percentage calculation.

Shelley Nadler, legal director at Bird & Bird, points out that higher percentages are sometimes charged where the franchisor takes on more operational responsibility.” This could include invoicing customers, collecting payments or finding customers for the franchisee.”

John Pratt also explains that franchisors often calculate management fees on invoiced turnover, even if you’ve not yet received payment.

What other ongoing fees should I expect?

In addition to the management service fee, many franchisees pay a separate marketing or advertising contribution.

Shelley Nadler explains that “in most cases, the franchisor will undertake responsibility for advertising, promotion and public relations for the network,” often through a central marketing fund funded by franchisee contributions.

Vicky Wilkes also highlights less obvious costs, including “purchase of equipment or vehicles”, “additional training”, “rental of premises”, “staff” and “insurance premiums.”

These costs sit alongside franchise fees and can have a significant impact on overall profitability.

Is a fixed fee better than a percentage-based royalty?

This is one of the most debated issues in franchising. Shelley Nadler notes that fixed fees can benefit a franchisee “if their level is not too high, as the franchisee can budget for a set payment for each payment period.”

Should franchisees be wary of fixed monthly management fees?

While a fixed fee gives certainty, Louise Harris, principal at Franchise Projects, raises a key concern: “Since the franchisor will receive the same amount of money each month, the question is what motivation does the franchisor have to innovate and help the franchisee drive more business?”

By contrast, she says, “working on a percentage means the franchisor also has ‘skin in the game’.”

Brian Duckett advises that the best way to judge fairness is simple: “talk to existing franchisees and see what they think.”

What should franchisees focus on before signing?

Across all the expert advice, one theme is consistent: understanding the full financial picture matters more than the headline percentage.

Vicky Wilkes stresses that “the important issue for the franchisee will be whether [you are] happy that the management service fee will not reduce profitability… to an extent that the franchise business is an unworkable proposition.”

In practice, this means looking beyond individual fees and assessing how all costs interact with realistic sales projections. A franchise can only succeed if the fee structure works for both parties, not just on paper, but in day-to-day trading reality.