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Are all management service fees based on a franchisee’s monthly turnover?
Most franchisors charge a straight percentage fee based on the gross revenues of the franchisee. The average level of continuing fees reported in the latest NatWest/bfa franchise survey is 7.5 per cent of turnover, although much higher fees can be payable where franchisors carry out administrative functions for franchisees such as invoicing customers and collecting payments or where the franchisor finds customers for the franchisee. Although not so common, some franchisors do establish a fixed fee or require payment of a minimal level of fees. 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. Adjustments may need to be made at regular intervals to take into account inflation or to reflect growth, but it does provide some level of certainty. Additionally if the franchise grows rapidly, the franchisee may benefit from an initial low fixed fee. Although there is less certainty in a percentage fee, it may be less of a burden on the franchisee if the franchise is slow to perform well. Rather than facing a fixed fee based on projections that outweigh reality, the franchisee is only required to pay a percentage of what they actually are making.
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