Franchise Royalty Calculator
Franchise royalty fees are recurring payments from franchisees to franchisors, typically expressed as a percentage of gross monthly sales. In addition to royalties, most franchise agreements require a contribution to an advertising or marketing fund. This calculator estimates monthly and annual royalty and marketing fund obligations based on your projected sales and the rates in your franchise disclosure document (FDD). Consult your FDD Item 6 and a franchise attorney for the exact terms of any specific franchise system.
Franchise royalty formula
Monthly Royalty = Monthly Sales * (Royalty Rate / 100)
Monthly Marketing = Monthly Sales * (Marketing Rate / 100)
Total Monthly = Monthly Royalty + Monthly Marketing + Other Fees
Annual Total = Total Monthly * 12
Fee % of Sales = Total Monthly / Monthly Sales * 100
Most franchise royalties are calculated on gross sales before any deductions. Some systems use a minimum royalty (e.g., $1,000 per month) that applies even if the percentage would yield less. Minimum royalties are specified in your franchise agreement and FDD.
Understanding franchise fee structures
- Royalty fees compensate the franchisor for the brand license, operating systems, training, and ongoing support.
- Marketing fund contributions are pooled across all franchisees to fund national advertising campaigns.
- Some systems use a tiered royalty structure where the rate decreases as sales exceed certain thresholds (e.g., 6% on the first $50,000 of monthly sales, 5% above that).
- Technology and point-of-sale system fees are increasingly common as franchisors roll out proprietary platforms.
- All recurring fees must be fully disclosed in Item 6 of the FDD before signing any franchise agreement.
Franchise royalty calculator: frequently asked questions
What is a franchise royalty fee?
A franchise royalty fee is a recurring payment made by a franchisee to the franchisor, typically calculated as a percentage of the franchisee's gross sales or net sales. It compensates the franchisor for the ongoing use of the brand, systems, training, and support. Typical royalty rates range from 4% to 12% of gross sales.
What is a marketing or advertising fund contribution?
Most franchise agreements require franchisees to contribute a percentage of sales to a national or regional advertising fund. This fund is used to run brand-wide marketing campaigns. Contribution rates typically range from 1% to 4% of gross sales, separate from the royalty fee.
Are royalties calculated on gross or net sales?
Most franchise agreements calculate royalties on gross sales (before deducting costs). Some agreements use net sales, which may exclude sales tax, returns, or specific product categories. The franchise disclosure document (FDD) Item 6 specifies how royalties are calculated for each system.
What is a Franchise Disclosure Document (FDD)?
The FDD is a legal document that franchisors must provide to prospective franchisees at least 14 calendar days before signing any franchise agreement or paying any fees, as required by the FTC's Franchise Rule (16 CFR Part 436). Item 6 of the FDD lists all fees, including royalties and advertising contributions.
What other fees do franchisees typically pay?
Beyond royalties and marketing fund contributions, franchisees often pay an initial franchise fee (one-time, typically $10,000 to $50,000), technology or point-of-sale system fees, transfer fees (if selling the franchise), renewal fees, training fees, and local advertising requirements. All fees must be disclosed in the FDD.
Official sources
- FTC Franchise Rule (16 CFR Part 436): FTC Franchise Rule.
- FTC, Buying a Franchise: A Guide for Prospective Franchisees.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.