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Florida Franchisees: What You Need to Know About Royalty Payments

Royalty payments are a very common part of franchise agreements. In fact, most franchise agreements include some type of royalty fee arrangement. These arrangements will generally require the franchisee to pay a percentage of their sales revenue to the franchisor at prearranged intervals. In return the franchisor will generally provide some support to the franchisee’s business. The royalty payments structure often provides the foundation of a successful franchise business arrangement. When set up correctly, royalty payments can provide substantial benefits to both franchisors and franchisees. Of course, the terms of this arrangement must always be fully consistent with Florida franchise law.

Royalty Payments Can Benefit Everyone

The primary advantage of the royalty payment structure is that it aligns the interests of the franchisor and the franchisee. Above all else, both parties are seeking to maximize the success of their own business. With a royalty payment, franchisors get more money when the franchisee makes more money. Both parties can profit together. This arrangement can help encourage franchisors to provide a franchisee with the appropriate amount of support. That support can come in many different forms. For example, a franchisor may have a large enough market presence to effectively negotiate prices with suppliers. That being said, not every royalty arrangement is fair to the franchisee. While it is clear that the royalty fee structure can be mutually beneficial, the devil is always in the details.

Is My Royalty Fee Arrangement Fair?

Maybe. You need to take a hard look at the numbers. Specifically, you should comprehensively review all costs associated with running your franchise as well as your anticipated level of profit. A good way to assess royalty payments is to calculate out how much your business would make in profit without your royalty fee obligations. Then, you should compare that figure to your earnings after the royalty fee is deducted. How much does the fee reduce the anticipated (or actual) rate of return for your business? If it brings it below a level that you feel is fair, you have a problem. Before buying a franchise, you should always let an experienced franchise law attorney review your franchise agreement. Your attorney can help you put the royalty fee structure into the proper context so that you can make a well-informed assessment of whether or not the agreement is in your best interests. Alternatively, if you already own a franchise, and you believe that you are being charged an unfair amount in royalty fees, you may be able to take legal action. You should contact an franchise law attorney immediately to discuss your legal options.

Contact Our Office Today

At Pike & Lustig, LLP, our West Palm Beach commercial litigation attorneys have extensive experience handling Florida franchise disputes. If you are involved in a dispute over franchise royalty payments, of if you have questions about franchise law in general, please contact our team today. We will review your case free of charge. Our firm proudly represents franchisees throughout South Florida, including in Fort Lauderdale, Coral Gables and Miami.

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