Royalties and the Marketing Fund

This page covers the royalty and the marketing fund contribution: what each pays for, how collection works, what happens when a payment fails, and how to dispute a fee. This page summarizes the Franchise Fees & Royalties Policy and the Franchise Marketing Fund Policy, which govern. The two obligations are collected together and accounted separately: the royalty pays for the license and the system; the marketing fund contribution pays for collective marketing. They arrive on the same collection and they are not the same money: the franchisor does not offset one against the other, and neither should you in your books.

The royalty

The royalty is calculated on Gross Sales (see Reporting Your Gross Sales) at the royalty rate in your franchise agreement. The rate was entered at signup; if it was left blank, it was resolved before you signed: an executed agreement has a rate. The rate itself is stated in your agreement.

What the rate applies to matters as much as the rate: Gross Sales as your agreement defines it, for the reporting period your agreement sets. A rate applied to the wrong base is the most common royalty dispute in franchising, and it is always avoidable: the base is Gross Sales, the rate is the agreement, the math is multiplication. When a royalty figure looks wrong, check the base first, the rate second, the arithmetic last, in that order, because that is the order of likelihood.

The marketing fund

Under the Franchise Marketing Fund Policy, the fund is segregated: your contributions do not mingle with operating money: and the franchisor reports on it annually. You are not buying ads directly; you are buying into collective spend. In practice

• You contribute at the percentage of Gross Sales stated in your agreement, alongside the royalty.
• You do not control how the fund is spent: that is the point of a fund: but you are entitled to the annual accounting of where it went.
• Local marketing minimums, if your agreement has them, are separate from and additional to the fund contribution. One is collective; the other is yours. Do not confuse them.

If the annual fund report does not arrive, ask for it. The obligation to report is the franchisor's.

How collection works

Royalties and fund contributions are collected by ACH debit or by deduction against your connected payouts, on the schedule the agreement states. You maintain a valid payment method and sufficient collected funds. Under the Franchise Fees & Royalties Policy

• Failed collection: notice at 3 business days, a second attempt at 7. Late charges accrue from the original due date per the fee schedule.
• Separate accounting: royalty obligations and marketing fund obligations are never offset against each other. A dispute about one does not pause the other.
• The 30/60-day line: non-payment beyond 30 days past due is a material breach. Beyond 60 days, it is grounds for termination proceedings under the Franchise Termination Policy, subject to notice and cure. Sixty days of unpaid royalties is not a cash-flow strategy; it is the beginning of the end of the franchise.

Disputing a fee

Fee disputes go in writing within 30 days of the statement.

The disputes worth having: a wrong Gross Sales base, a rate applied that does not match the agreement, a fee that is not in the fee schedule at all. The disputes that are not: "I didn't know" (the exhibit was there at signing), "nobody told me" (the statement told you). Read the exhibit once a year the way you would re-read your lease. See Your Franchise Agreement.

The initial fee and the others

The initial franchise fee was due at signing: one-time, and non-refundable except as the agreement provides. Its amount is stated in your agreement. The rest of the fee schedule: transfer, renewal, training, technology, late charges: each activates on its own trigger. You do not need to memorize them; you need to know where the exhibit is, and to check it before any transaction that might trigger one: selling the business (transfer fee), renewing (renewal fee), adding staff who need training (training fees).