Legal Guide

How Does a Franchise Get Paid?

by ezyLegal Editor · 4 min read

how does a franchise get paid

Massive corporations that have a large number of outlets throughout the world often utilize franchise agreements to simplify the process of administering their outlets. Through these agreements, they hand over day-to-day control of their establishments to a person known as the “franchisee” or the “franchise owner.” This is particularly prevalent in fast food outlets, most notably Subway. As this is a complex arrangement, this often leads people to ask, “How do franchise owners get paid?”

How do franchise owners get paid?

  • On the face of it, it may seem that franchise owners don’t have any reason to enter into such an agreement. They have to put in a large initial investment, they may not be allowed to keep all their profits, and they have to adhere to the instructions given by the franchise owner.
  • A habitually pessimistic person might answer the question of “How do franchise owners get paid?” by responding that they don’t as a result of the payments that they must make to become franchise owners in the first place. However, this is incorrect.
  • Such agreements are actually greatly beneficial for franchisees. One of the primary reasons for a business failing is an inability to create a brand image. Through franchising, the franchisee can use a pre-existing brand image and the consequent brand loyalty.
  • The franchisee would gain contacts in the industry that they may otherwise not have. For instance, they may be able to reliably get cheap and high-quality raw materials for their business through a supplier that they would not have been able to find on their own.
  • More importantly, franchisees earn money through the profit received from the sale of goods and services. A simple answer to “How do franchise owners get paid?” is that they get paid through licensing fees.
  • Although a percentage of the profits might go to the franchise owner, the franchisee gets to retain a large percentage of the profits. There are also other sources through which they may get paid.
  • Depending on the terms of the agreement, the franchisee may also receive a monthly salary. But this arrangement is relatively rare, as most franchises opt to keep the profits.
  • The logical corollary to the question of “How do franchise owners get paid?” is “How do franchisees get paid?”

How do franchisors get paid?

  • Franchisors allow franchisees to buy into their franchise for a substantial initial investment, which includes the cost of licensing, advertisement, and equipment.
  • While the advertising and equipment fees are in place to cover the cost borne by the franchisor, the licensing fees usually represent a clear profit for the franchisor.
  • Franchisors have other sources of income in these agreements too. For instance, franchisees may have to pay a monthly or annual fee in lieu of rent. They may also have to pay the franchise owner a cut of the profits that they make.
  • They may also take a percentage of the value of each sale, known as royalties.
  • In this way, there are additional sources of income for franchisors. This makes the question of “How do franchise owners get paid?” more complicated as it shows situations that make it seem as if being a franchisee is more trouble than it’s worth.
  • The exact sources of income for a franchisor can only be determined by examining the agreement between them and the franchisee. The clauses relating to payment would differ from contract to contract.
  • If you’re asking yourself, “How do franchise owners get paid?” chances are that you’re looking to buy a franchise. It is important to know the responsibilities that come with being a franchise owner before making such a decision.

Responsibilities of franchise owners

  • While the answer to “How do franchise owners get paid?” might lead people to believe that it is an easy job that pays well, it is necessary to consider the responsibilities that come with the position.
  • The first and most obvious responsibility is ensuring regular payments to the franchisor. The requisite payments must be made on time, every time, or else the franchise owner’s license to operate under the franchise’s brand could be revoked.
  • As franchise owners rely on the brand awareness of their franchisor, this would be a great blow to their business. Thus, regular payments are of utmost importance.
  • Franchise owners must also hire, train, and manage employees. Another wrench that gets thrown into the question of “How do franchise owners get paid?” is employee remuneration. Franchise owners are responsible for this.
  • The franchisor may not always arrange a building for the franchise owner to operate in. If they don’t, the franchise owner has to find a place to operate the business and enter into a separate agreement to run a commercial enterprise there.
  • Even if the franchisor does arrange for business premises, the franchise owner would still have to oversee the actual setting-up and physical maintenance of the business. This includes regular cleaning, conforming to relevant food safety and hygiene standards, and other matters of practical importance.
  • While the prospect of being a franchise owner may seem very promising after considering “How do franchise owners get paid?” the reality of being a franchise owner is decidedly less utopian as the actual success of the business depends on the franchise owner.
  • Although the brand value and support from the franchisor help considerably, the franchise owner still has to lead the business to success. It is not an easy task to succeed in today’s competitive atmosphere.

Conclusion

The question of “How do franchise owners get paid?” has a complicated answer due to the many expenditures that come along with being a franchise owner. However, some of the stress of being a business owner is alleviated by the support provided by the franchise holder.

Before being dazzled by the answer to “How do franchise owners get paid?” and buying a franchise, the potential owner must comprehensively study the market that they want to enter into. After this, they should consider the most profitable franchise to become a part of and study how their business succeeds and differentiates itself from competitors.

Research, however, is not sufficient. One possible answer to “how do franchise owners get paid?” is by being franchise owners in the first place. The only way to achieve that is to find a franchise to buy into and enter into a franchise agreement.

Before buying a franchise, the potential owner must comprehensively study the market that they want to enter into. Consult a Lawyer and get the right answers to all your queries.

ezyLegal Editor

Written by

ezyLegal Editor

Get Expert Legal Advice For

Franchise Agreement

Enter a valid phone number

Related Articles

View MoreView More

Hi there 👋!

How can I help you?

whatsapp