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What are a franchisor’s main sources of income?
Other than the income that the franchisor may receive from running his own business outlets, the majority of a franchisor’s income usually comes from the various payments made to him by his franchisees. The initial franchise fee, sometimes called the upfront fee, typically covers the acquisition of the rights to use the system, use the name, receive training, etc. It may encompass the entire cost of setting up the unit, in which case it could be referred to as a turnkey fee, so the fee levels charged vary enormously. Once trading, the franchisee has to pay for the support services provided by the franchisor, and provide him with an operating profit. Once again, the range and levels of such support will vary. The amount is usually calculated as a percentage of the franchisee’s turnover, but is sometimes a fixed amount, usually payable monthly. Many franchisors also take another percentage, or fixed, fee to cover national marketing. Franchisees also need products to sell, or to use in the operation of their business. In many cases, the franchisor will supply these and make a profit on them, or appoint approved suppliers from whom he receives a percentage commission.
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