ARTICLE
"Magkano ba dapat ang franchise fee ko? At ilang percent ang royalty?"
This is one of the first questions business owners ask when they decide to franchise. Many answer it by copying another brand in the same mall. That is risky. Your fees should come from your numbers: what it costs you to bring in and support a franchisee, and what a franchisee can realistically earn in your business.
In 33 years of franchise consulting at GMB Franchise Developers, we have seen that good fees make a network strong, and wrong fees quietly kill it. This guide shows the method. The two peso lines later only show the arithmetic. They are not fees to copy.
Franchise fee, royalty and marketing fee: what each one pays for
Before computing, be clear on what each fee is for. If you cannot explain what a fee pays for, a serious franchisee will not want to pay it.
| Fee | When it is paid | What it should cover |
|---|---|---|
| Franchise fee | Once, when the franchise agreement is signed | The right to use your brand and system for the term, plus initial support: site evaluation, training, opening assistance |
| Royalty | Regularly, usually monthly | Ongoing support: field visits, product development, operations coaching, systems, and your fair return as franchisor |
| Marketing / brand fund fee | Regularly, usually monthly | Brand-wide advertising and promotions that help every branch |
Some franchisors also earn from supplies sold to franchisees. That is fine, but it must be transparent. We explain the full package in Pricing Your Franchise Package So Franchisees Actually Earn.
Step 1: Get honest numbers from your own branch
You cannot compute fair fees without real numbers. From your company-owned branch, ideally with at least a year of stable records, get:
- Average monthly gross sales (a normal month and a slow month)
- Cost of goods sold
- Rent, salaries, utilities and other operating costs
- Net profit, before and after paying a manager's salary (a franchisee may not run the store personally)
- Total cost to open the branch: build-out, equipment, initial inventory, permits, deposits
If you do not have this yet, start there. See Company-Owned Pilot Branch: Why You Need One Before Franchising.
Step 2: Compute your franchise fee
The franchise fee is your real cost of bringing in and supporting one franchisee, plus a fair margin. Then check that fee against the franchisee's total investment. If the fee is a very large part of what a franchisee spends, buyers will feel they are paying mostly for a name.
That cost is different for every brand. It usually includes screening, site evaluation, initial training, opening support, the cost of finding the franchisee, and a share of building the system. Look at what is normal for your format (cart, kiosk, in-line store or full restaurant), but always start from your own costs. Our guide on food cart vs kiosk vs full store shows how investment levels differ by format.
The method is simple; getting your own real numbers right is the hard part. In a consultation, GMB Franchise Developers computes your franchise fee, royalty and marketing fee from your actual branch data. Book a consultation.
Step 3: Compute your royalty
Most franchises in the Philippines charge royalty as a percentage of gross sales, paid monthly. Some charge a fixed monthly fee, which is common when sales are hard to monitor.
A one-line example: ₱400,000 × 5% = ₱20,000. The harder part is choosing the rate and defining the base. Ask these questions:
1. What does your ongoing support actually cost? Add up field visits, your operations team, product development and systems per branch per month. Your royalty income across the network should cover this and give you a fair return.
2. Can the franchisee still earn after paying it? Using your own branch's numbers, compute the franchisee's net profit after royalty, marketing fee, rent, salaries and supplies. If the franchisee earns little or nothing in an average month, your rate is too high or your model is not ready.
3. What exactly is "gross sales"? Define it clearly in your franchise agreement. Is VAT included or excluded? Are senior citizen and PWD discounts deducted? What about delivery app commissions, refunds and voided sales? Different definitions can change the royalty by thousands of pesos a month.
4. Percentage or fixed? A percentage grows with the franchisee's sales, so you both win together. A fixed fee is easier to compute but does not adjust in slow months. Some franchisors use a percentage with a minimum monthly amount. If you do this, make sure the minimum is fair in slow months.
How royalties are reported, collected and followed up is just as important as the rate. Read Royalty and Fee Collections: Setting Clear Payment Terms in Your Franchise Agreement.
Step 4: Add a marketing or brand fund fee
Many franchisors collect a separate marketing fee, usually a smaller percentage of gross sales, pooled into a brand fund.
The arithmetic is the same idea: ₱400,000 × 2% = ₱8,000. What you do with that money is the part that has to be designed for your brand.
Keep this money separate from your royalty income and report to franchisees how it is spent. Nothing builds trust faster than showing franchisees where their marketing money went.
Step 5: Test everything from the franchisee's side
Put the package in the franchisee's shoes. Run a good month, an average month, and a slow month. After royalty, the marketing fee, rent, salaries and supplies, can the franchisee still earn, and still recover the investment, when the month is slow? If the answer only works in the best month, adjust the fees or the model before you sell a single franchise.
One important rule: never promise income. Share realistic figures from actual branches only if you can back them up. A franchise is a business, not an investment with guaranteed returns. We explain why in Franchise or Investment Scheme? How Franchisors Stay on the Right Side.
Common mistakes first-time franchisors make
- Copying a competitor's fees without knowing their costs or support level.
- Setting a high franchise fee to recover development costs fast, which scares away good franchisees.
- Setting the royalty too low to make selling easier, then running out of money to support branches.
- Leaving "gross sales" undefined, which leads to disputes later.
- Forgetting taxes. Ask your accountant how VAT and withholding tax apply to your franchise fee and royalties.
- Never reviewing fees. Revisit your numbers yearly as costs change.
Frequently asked questions
What is a typical royalty fee in the Philippines?
Many franchises charge a single-digit percentage of gross sales per month, but there is no standard rate. The right rate depends on your support costs and on what your franchisees can afford while still earning.
Is the franchise fee refundable?
That depends on your franchise agreement. Many franchisors make the franchise fee non-refundable once training and site work have started. Whatever you decide, write it clearly in the agreement and explain it before signing.
Should royalty be based on gross sales or net profit?
Most franchisors use gross sales because it is easier to verify. Net profit can be changed by many expenses the franchisor cannot control, which can lead to disputes.
Can I charge a fixed monthly royalty instead of a percentage?
Yes. Some franchisors charge a fixed monthly amount, especially when sales are hard to track. Make sure the fixed amount is still fair in slow months.
Do I need a consultant to set my fees?
The method is simple. Getting your own real numbers right is the hard part. See How to Choose the Best Franchise Consultant in the Philippines for what to look for.
Get your numbers checked
The method is simple; getting your own real numbers right is the hard part. Every brand's costs, margins and franchisee earnings are different, and wrong fees quietly kill a network. In a consultation, GMB Franchise Developers computes your franchise fee, royalty and marketing fee from your actual branch data.
GMB Franchise Developers has helped 350+ brands since 1993 build franchise packages that work for both sides. Book a consultation and bring your branch numbers. Sabay nating i-compute.