What is a royalty fee?
A royalty fee is the ongoing payment a franchisee makes to the franchisor — usually a percentage of gross sales, paid weekly or monthly, for the life of the agreement. Because it is charged on sales rather than profit, the franchisor gets paid even in months the unit loses money. Rates, bases, and payment mechanics are disclosed in Item 6 of the FDD.
Model the royalty into your worst plausible month, not your best: a percentage of gross comes off the top before rent, labor, and your loan payment. Some systems charge flat monthly royalties instead — better in strong months, punishing in weak ones. Royalties fund the system you're renting; what matters is whether support actually shows up, which is a validation question.
Compiled from franchise disclosure filings — never hand-typed.