Franchise Solicitors Hamilton Pratt Logo

How are the franchisor's on-going management fees calculated?

Franchise Solicitor John Pratt

The average management fee in the UK according to the latest Natwest/BFA survey is about 8% and in addition a separate marketing levy is usually charged of about 2%. The marketing levy is separate from the management fee because the franchisor can only use it to market and advertise and for no other purpose - it is ring fenced.

Usually the management fees are calculated as a percentage of turnover including sums invoiced which have not been paid. In some franchises where turnover is low or is a cash business, where it is difficult to verify turnover, franchisors ask for a fixed monthly fee to be paid. If that is proposed you should work out what your turnover is likely to be so that you can see if the fixed monthly fee represents, as it should do, approximately 8% of your turnover.

The management fee is there for two purposes. First to reimburse the franchisor the cost of providing the continuing obligations to support franchisees and secondly it is the only fee on which the franchisor makes a profit.

One thing to look out for is that if you are obliged to purchase products from the franchisor or its nominated supplier and the franchisor receives some financial advantage from the supply of such products, you would expect for there to be a reduced management fee in such circumstances so that the franchisor should not receive a mark up on products and also charge a high management fee.

John Pratt
For Hamilton Pratt

Hamilton Pratt | Franchise House | 3A Tournament Court | Tournament Fields | Warwick | CV34 6LG

Tel: 01926 838 900 | 01926 258 799