Lump sum and royalties

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The difference is that a lump sum payment is a one-time sum paid at the start, while royalties are regular payments, usually monthly. Royalties are usually understood as a percentage that the franchisee pays for the right to continue working under the brand.

The percentage for royalties is calculated from revenue or net profit. The average size is about 7-10% of revenue, but it all depends on the industry.

Example #1 : In fast food, royalties are usually around 10%, while in the hotel business, they are no more than 5%. Thus, the royalty amount may vary depending on the business area and seasonality.

Royalty is paid not only for the right to use the bangladesh phone number lead brand, but also for periodic support. That is, it is not just a one-time payment, but an opportunity to receive new know-how, training and technologies from the franchisor.

Example #2 . If a company like Dodo Pizza creates a new pizza recipe, then by paying royalties, the entrepreneur will be able to use it. This means that he will have access not only to the recipes that were available at the time of the contract, but also to all new ones that will appear later.

On the topic. Royalty in franchising - what is it and how does it work



What influences the size of the lump sum payment
The amounts can be very different: from 30-40 thousand to millions of rubles. There is no exact formula for calculation, because the payment consists of different parts, like a construction set.

Example . There are 7 points that we offer in the franchise agreement: a business plan for 3-5 years, a description of business processes, instructions, step-by-step opening plans, technologies, a customer base and training materials. We need to evaluate each of these points in monetary terms and understand which of them is the most expensive.

Once the franchisor has determined all the items and services that he offers, as well as their cost, you can proceed to the calculation. There are two methods to do this :

The "wishlist" method: here the starting point is the amount you want to set. For example, your "wishlist" is 500 thousand. Then you start filling out the package of services and writing down how much each of them costs. For example, a customer base can cost 30 thousand, and a description of business processes - 80 thousand. So you sum up all the expenses and see if your price is adequate.
The "cost price" method: here everything is the other way around. First you calculate all the costs, and only then add the markup. For example, if all services cost 150 thousand, you can add a 30-40% markup.
Both methods work and you can use them depending on the situation. In addition to them, it is important to consider the popularity of the brand and franchise. The price will greatly depend on this.