How to set franchise fees and royalties in Spain

When franchising an existing business, copying another brand’s fees could leave you without the resources to support your franchisees or burden their outlets with unsustainable costs. A franchise network needs a balance: the franchisor must be able to deliver on its promises, while each outlet remains financially viable. To achieve this, build your initial franchise fee and ongoing fees around the services you provide and their costs, rather than an appealing headline figure.

1. Separate onboarding from ongoing support

Before setting prices, identify the work the franchisor will carry out for each new franchisee. Distinguish onboarding costs from recurring costs and broader investment in developing your franchise offering.

The initial franchise fee can cover access to the franchise system and initial services, such as training, help with preparing for opening or setting up tools. It does not buy ownership of the brand: rights to use it are granted on the agreed terms.

Ongoing fees or royalties can fund continuing support, operational updates, monitoring and other services specified in the agreement. They do not have to be calculated on profits: they can be fixed, variable or a combination of both.

Prepare a service breakdown covering four points:

• What the franchisee receives.
• When and how often they receive it.
• Who delivers it and how many hours it takes.
• What internal and external costs it generates.

Also identify expenses the franchisee will pay directly. Travel, accommodation during training and software licences should not come as surprises after they accept the offer.

2. Calculate fees from both sides of the agreement

To establish a starting point for the initial fee, add up the direct onboarding costs: training hours, travel, preparation of materials and initial support. Add a justified allocation of shared costs and your planned margin. This is an internal calculation benchmark, not a legally prescribed rate.

Avoid trying to recover all the business’s historical investment from your first applicants. Equally, charging a low initial fee is risky if opening an outlet requires weeks of work that nobody has budgeted for.

For the ongoing fee, analyse two separate profit and loss accounts:

• The franchisor’s: recurring income against the actual cost of supporting outlets and maintaining shared resources.
• The outlet’s: earnings after purchases, staff, rent, other expenses and all franchise fees.

Include reasonable remuneration for the owner’s work. An outlet that only looks profitable because its owner works for free cannot sustain a balanced relationship.

Also check whether the franchisor can provide support if fewer franchisees join than expected. Constantly relying on new initial fees to fund support for existing franchisees is a sign of financial fragility.

3. Define a formula that avoids disputes

A fixed fee makes the payment predictable, but becomes a heavier burden when business slows. A percentage of sales moves in line with turnover, although it requires a verifiable calculation basis. A hybrid formula combines both features and can add complexity.

Simply writing ‘a percentage of sales’ is not enough. The agreement must specify how the following are treated:

• VAT and other taxes charged to customers.
• Returns, cancellations and discounts.
• Sales through platforms and their commissions.
• Online orders attributed to the outlet.
• Vouchers or gift cards, avoiding double counting.

Also clarify the calculation period, payment date, supporting documents and procedure for correcting errors. If there are minimum payments, introductory discounts or fee adjustments, set out the rules in writing.

Distinguish the turnover used to calculate the royalty from the money actually received. Confusing the two can cause cash flow pressures and avoidable disagreements.

4. Make other payments transparent

If there is an advertising contribution, explain its purpose, who administers it and how its use is reported. Distinguish network-wide campaigns from the local advertising each outlet must fund itself.

Also detail any charges for technology, additional training, renewal, transfer of the business or other items, where applicable. If the franchisor earns income from mandatory supplies, take this into account when assessing the overall financial burden.

The useful comparison is the full cost of belonging to the network, not just the advertised royalty. Provide a single table showing each charge, its amount or formula, payment frequency, applicable taxes and whether it can be adjusted.

5. Align your charges with the Spanish legal framework

In Spain, Article 62 of Law 7/1996 on the Regulation of Retail Trade and Royal Decree 201/2010 regulate specific aspects of franchising. The royal decree requires written pre-contractual information to be provided at least 20 working days before a franchise agreement or preliminary agreement is signed, or any payment is received from the prospective franchisee.

Do not, therefore, take an early reservation payment to circumvent this period. Financial obligations must be clearly explained and consistent with the agreement. These rules do not prescribe a mandatory initial fee or royalty percentage.

Royal Decree-law 20/2018 abolished the national requirement to notify the Register of Franchisors. Do not confuse that former procedure with a current condition for charging fees.

Before recruiting applicants, have the full financial schedule reviewed by legal and tax advisers. Practical takeaway: do not publish any fee until you can explain what it pays for, how it is calculated and why it allows both the outlet and the franchisor to remain viable.