Franchise Fees and Royalties in Belarus: How to Calculate Them

When turning an existing business into a franchise, it is tempting to set the initial fee by copying a familiar chain and base royalties on the income you hope to earn. But those payments may fail to cover support costs or leave the franchisee without a profit. A sustainable franchise network needs a different approach: first define your obligations and costs, then test the financial viability for both sides, and only then formalise the terms.

1. Separate start-up fees from ongoing support payments

Start not with a price list, but with a list of what your company actually provides to franchisees. Divide the work into one-off, recurring and additional services. This will help you explain each payment and avoid effectively charging twice for the same service.

The initial franchise fee is a one-off payment for joining the network. When calculating it, account for the work involved in preparing for launch: finding and assessing premises, adapting the business format to the site, training, team visits and setting up accounting and management systems. The fee does not have to equal the cost of this work: it can also reflect the value of the rights granted and the experience you have built up. Costs nevertheless provide an important starting point.

Royalties are recurring payments for the use of the package of rights granted. For the franchisor, this income must also fund the promised support: advice, updates, quality control and the development of systems and solutions for the network.

The marketing levy, if there is one, should be listed separately. Explain which activities are funded centrally and which the franchisee pays for independently. List additional services, such as training a replacement team, in advance too, with a clear method for determining their price.

2. Calculate the cost of your obligations to the franchisee

For each activity, identify who will carry it out, the time required, direct expenses and frequency. Include the owner's time: advice does not become free simply because the business founder currently provides it.

Create an internal spreadsheet with four categories:

• preparation for opening a specific outlet;
• ongoing support for an individual franchisee;
• shared costs of supporting the network;
• a contingency allowance for unplanned assistance and correcting launch problems.

Allocate shared costs across a realistic number of operating outlets, not the number of franchises you would like to sell. Relying on future franchise sales to fund your support team is particularly risky: existing franchisees need support regardless of whether new initial fees are coming in.

For an internal check, use a simple calculation: recurring income from a franchisee minus the direct cost of supporting them, minus their share of common costs. A negative result means you need to review the model, not simply sell franchises more aggressively.

Calculate cash flow separately. Even a model that is profitable overall can create a cash shortfall if visits, training and preparation have to be paid for well before the fees are received.

3. Choose a royalty structure and test its impact on the outlet

The main options are a fixed payment, a percentage of turnover or a combination of the two. There is no single best solution.

A fixed payment makes planning easier, but takes up a larger share of the franchisee's turnover when sales are weak. A percentage of turnover rises and falls with sales, but requires a consistent definition of turnover and verifiable reporting. A combined structure can cover the franchisor's basic costs, but you must separately check whether a new outlet can afford the minimum payment.

Take the actual financial performance of your own business and add all the costs an independent franchisee will face: royalties, the marketing levy, mandatory software, local advertising and management. Do not automatically assume that a future franchisee will benefit from the favourable rent or purchasing terms available to your own outlet.

Test both a base case and an adverse scenario: slower sales growth, rising costs and a delayed opening. Check whether there is enough cash to meet ongoing obligations, pay the manager and replenish working capital. If profit disappears after only a slight deterioration in conditions, the level or structure of the fees needs to be reconsidered.

4. Turn your calculations into contractual terms

Belarus has no standalone franchising law, but franchise relationships are specifically regulated by its Civil Code. Article 910 covers the comprehensive business licence agreement, the legal form used for franchising. Under Article 910-1, the agreement must be in writing and registered with the patent authority, the National Centre of Intellectual Property. Failure to meet the registration requirement renders the agreement invalid.

Your fee schedule must therefore align with the legal structure of the transaction. Work with a Belarusian lawyer to establish when payment obligations arise, taking account of registration, the granting of rights and the actual preparations for launch. Agree in advance what will happen to money already received if registration or the opening does not go ahead.

For turnover-based royalties, specify:

• which sales are included in the calculation base, including deliveries and online orders;
• how taxes, returns, discounts and advance payments are treated;
• whether intermediary commissions reduce the calculation base;
• the calculation period, payment deadline and supporting documents;
• the procedure for correcting errors and reconciling figures.

Set out the rules for changing fees separately: the grounds for a change, the formula, notice requirements and the formalities involved. Do not leave an unrestricted right to increase charges without clear limits.

5. Make payments clear before signing

Give prospective franchisees a single financial summary covering all mandatory payments, their deadlines, purpose and conditions for adjustment. Separate payments to the franchisor from spending on premises, equipment, stock and staff. Show not just the start-up budget, but also the ongoing financial commitments.

Present your own outlet's results as actual figures for that specific location, and the franchisee's forecast as a calculation based on assumptions, not a guarantee of income. For the marketing levy, propose a budget and reporting arrangements in advance: transparency strengthens trust within the network.

Practical takeaway: before making your first franchise offer, prepare three aligned documents: a calculation of support costs, a financial model for the franchisee and a contractual fee schedule. Every promised form of support should have a source of funding, and every charge should have a clear explanation.