Setting Franchise Fees for an Australian Business

Setting franchise fees is not simply a matter of copying another brand’s royalty rate. When you franchise an existing Australian business, your fees must support two viable businesses: the franchisee’s outlet and your support operation. A sustainable franchise community needs a clear explanation of what each payment funds, how it is calculated and whether the business can afford it.

1. Cost the support you will actually provide

Start with your service commitments, not your preferred income. Separate the work involved in opening an outlet from the support required throughout the franchise relationship.

An initial franchise fee might help cover territory planning, initial training, onboarding and opening assistance. Ongoing royalties might fund field visits, operational advice, technology administration and continued development of the business model.

Build a cost schedule that includes:

• Staff time, including preparation and follow-up work.
• Travel, accommodation and external specialist costs.
• Software and administrative resources used to support franchisees.
• Management capacity for troubleshooting and quality assurance.

Include the cost of replacing your own unpaid time. A founder answering every question in the evening is providing a service, even if that service does not yet appear as a wage expense.

Then model those costs at different network sizes. Some expenses arise before the first franchisee opens; others increase with every location. Do not assume a small group of franchisees can immediately fund a fully staffed support office. Identify how you will finance any shortfall without depending on continual sales of new franchises.

2. Test fees against franchisee cash flow

Use the existing business’s trading records to build an outlet model, adjusting for costs a franchisee would face. Include rent, wages, a market-based allowance for the working owner, insurance, maintenance, local marketing and all proposed franchise payments.

Compare possible charging structures:

• Percentage royalty: moves with sales, but remains payable even when the outlet makes little or no profit.
• Fixed recurring fee: is predictable, but takes a larger share of revenue when sales fall.
• Combined structure: can balance different costs, but becomes harder to explain and administer.

For a percentage royalty, define the sales base precisely. Your commercial brief should address GST, refunds, discounts, online orders and third-party delivery transactions. Ask your accountant and lawyer to translate the intended treatment into consistent financial and contractual terms.

Run conservative, expected and stronger trading scenarios. Include a slower opening period and higher operating costs. Review cash remaining after fees, owner remuneration and debt repayments, rather than relying only on an operating profit figure.

If the conservative scenario fails, investigate the cause. Lowering the royalty will not rescue an unsuitable location or an inherently weak margin. Equally, a profitable company-owned outlet may become unattractive once franchise charges are added.

3. Make the full payment structure understandable

Create one master fee schedule before drafting the legal documents. For every charge, record who receives it, what triggers it, how it is calculated, when it is payable and whether it can change.

Cover more than the headline franchise fee and royalty. Depending on your model, there may also be technology charges, additional training costs, renewal or transfer fees, marketing contributions and compulsory purchases.

Distinguish franchisor income from money collected for a particular purpose. If you establish a specific purpose fund, such as a marketing fund, obtain advice on the Code’s applicable accounting, reporting and audit requirements. Do not treat contributions as unrestricted operating income.

Check for double charging. If ongoing training is presented as part of the royalty-funded service, explain which additional training, if any, attracts a separate payment. Also identify supplier rebates or other benefits that require disclosure.

Avoid vague promises of unlimited support. Describe a service level you can resource, deliver and maintain as the community grows.

4. Check the legal fit before committing

Australia’s Franchising Code of Conduct is a mandatory code under the Competition and Consumer Act 2010, enforced by the Australian Competition and Consumer Commission. It governs franchise agreements, disclosure and conduct, including the duty to act in good faith. The Australian Consumer Law also prohibits misleading or deceptive conduct, and unfair contract terms protections may apply.

For agreements entered into, renewed or extended on or after 1 November 2025, the Code requires a reasonable opportunity for franchisees to earn a return, during the agreement’s term, on investment required by the franchisor. This is not a guarantee of profit. Have a franchise lawyer assess how your fees, required investment and agreement term work together.

Ensure payment obligations are accurately reflected in the agreement and disclosure document. Have any fee-adjustment mechanism reviewed rather than assuming you can increase charges whenever costs rise.

Practical takeaway: approve your fee structure only after an accountant has tested both businesses’ economics and a franchise lawyer has checked the terms. Keep one controlled fee schedule so your forecasts, explanations and legal documents remain consistent.