Setting Franchise Fees for Your Singapore Business

Setting franchise fees is not simply a matter of copying another brand’s royalty percentage. For a Singapore business preparing to franchise, the fee structure must fund promised support while leaving franchisees with a viable business. A sustainable franchising community starts with charges that both parties understand. This guide explains how to build, test and document those charges before recruitment begins.

1. Cost the support you will actually provide

Start with your service commitments, not your preferred selling price. Separate the work needed to open each outlet from the continuing work of supporting it.

One-off work might include candidate onboarding, site assessment, initial training, opening assistance and system configuration. Recurring work could include operational visits, refresher training, supplier management, technical support and franchisee business reviews.

For each task, record:

• Who will deliver it and how much staff time it requires.
• Travel, software and external supplier costs.
• Whether the cost arises per outlet or across the whole network.
• When cash must be spent relative to receiving fees.

Include a realistic cost for the founder’s time. Support delivered personally and without a salary during the first opening is not free when the network grows.

Use pilot operations to measure these inputs where possible. If opening support repeatedly takes longer than planned, resolve the delivery problem or revise the cost model before committing to a fixed package.

2. Give each fee a defined purpose

Build a fee schedule that distinguishes what the franchisee pays you from what they must spend with other suppliers.

Initial franchise fee: Explain the rights and onboarding services included. Specify payment stages and what happens if a site is rejected, training is not completed or the opening does not proceed. Avoid describing the fee as covering the entire investment when fit-out, deposits, stock and working capital are additional.

Ongoing royalty: Decide whether this is a percentage of defined sales, a fixed amount or another clearly explained calculation. A fixed fee is predictable but can place greater pressure on a slower outlet. A sales-based royalty varies with turnover but requires consistent reporting and verification.

Marketing contribution: Separate shared brand promotion from the franchisee’s local marketing obligations. State who controls spending, what expenditure is permitted and what reporting contributors will receive. Do not imply that every outlet will receive advertising expenditure equal to its contribution.

Other charges: Identify technology subscriptions, additional training, renewal, transfer and inspection charges where applicable. Explain supplier rebates or margins where they affect the commercial arrangement.

A useful test is whether a candidate can identify every compulsory payment without searching several documents.

3. Test affordability for both parties

Prepare separate cash-flow models for the franchisee and the franchisor. An outlet can appear profitable before royalties while becoming unattractive after all mandatory charges are included.

For the franchisee model, include rent, staffing, stock, utilities, delivery platform charges where relevant, local marketing and a realistic allowance for the owner’s work. Include working capital and financing costs rather than considering only opening expenditure.

Test quieter trading, delayed openings and rising operating costs. Where sales-based fees apply, model their effect alongside costs that do not fall when sales decline.

For your own model, test a small network with openings spread further apart than expected. Recurring support should not depend indefinitely on selling new franchises and collecting initial fees.

Pay attention to minimum royalties. They may protect franchisor income, but they also transfer more trading risk to franchisees. If you use them, test their affordability during the opening period and explain precisely when they begin.

4. Put the payment rules into the Singapore agreement

Singapore has no dedicated franchise statute, franchise registration system or franchise-specific mandatory pre-contract disclosure document or waiting period. This does not remove legal responsibility for what you promise or charge.

General contract law governs the agreement. The Misrepresentation Act 1967 and common-law principles can be relevant to misleading pre-contract statements. The Unfair Contract Terms Act 1977 may affect certain exclusion or limitation clauses, depending on their scope and context. General business registration obligations also remain separate from franchising.

Have a Singapore lawyer translate the commercial fee schedule into enforceable provisions. Define the sales base carefully, including treatment of GST, refunds, discounts, vouchers, delivery sales and platform commissions. Set reporting deadlines, payment dates, verification rights and procedures for correcting errors.

State whether quoted charges include GST and obtain tax advice on the applicable treatment. Any fee adjustment mechanism should specify its basis, timing and notice requirements rather than relying on an unexplained right to increase charges.

Although a prescribed franchise disclosure document is not mandatory, provide candidates with a clear written fee schedule before signing. Allow independent legal and financial review, and keep recruitment materials consistent with the agreement.

Practical takeaway: Before recruiting, complete three matching documents: a support-cost model, a franchisee cash-flow model and a legally reviewed fee schedule. If a charge cannot be explained clearly or supported commercially, revise it before offering the franchise.