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Should I be wary of a franchisor that requires a fixed monthly management fee?
The concern with a fixed monthly fee is that, since it has a guaranteed income, the franchisor may be less bothered about how well you are doing than he would be if his income rose or fell in line with the sales made by your business. Another reason to be concerned is that once the franchisor has sold all his available territories he cannot grow his own income if he is on fixed fees, so where will the money come from to further develop the network and system? Having said that, the potential benefit for you as the franchisee is that you know exactly what your management fee is going to be, and once you have gone past a certain sales threshold all the rest is yours. Often, where there is a fixed management fee, the franchisor is also supplying products to franchisees and, therefore, does do better the more franchisees sell. In these circumstances, you have less to be concerned about, but as always the best way to allay concerns is to talk to existing franchisees and see what they think.
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