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Does a franchisee have to pay for R&D costs associated with a new product/service?
The whole point about franchising is that the franchisor is constantly developing and improving the franchise system. These developments and improvements are reflected in the continuing fees that franchisees have to pay to their franchisor, and by changes and updates the franchisor makes to the operations manual. Franchise agreements expressly provide that the franchisor can update and amend the operations manual during the term of the franchise so that improvements can be incorporated.
In most franchises the franchisor will have its own corporate outlet or unit that enables the franchisor to obtain direct experience and make amendments to the system from that experience, but inevitably franchisors do rely on franchisees bringing forward improvements to the system. Again, most franchise agreements specifically provide that franchisees must do this and that the franchisor can incorporate those amendments royalty free into the system.
There may be some exceptions to the concept that franchisees do not pay for R&D, and these would have to be dealt with specifically in the franchise agreement. The most obvious exception may be software developments. Sometimes producing bespoke software can be an extremely expensive business and franchisors do require work in relation to this to be paid for on a pro-rata basis by franchisees in the system.
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