Fixed Royalty Rates

Image by &_yo via Flickr

Sean Kelly, writing at Franchise Pick, has an interview with Jonathan Barnett of Oxi Fresh.

"Oxi Fresh was designed to operate as a home-based business. Our services and business model eliminate the need for a store front, making it much more affordable for franchisees.

We are able to keep the initial cost of investment low by offering franchisees a home based system and not requiring the purchase of company vehicles.

Our royalty structure allows us to charge our franchisees a flat low monthly fee, rather than a percentage of sales like other franchising systems."

At least this system has a registered trademark, unlike one of its competitors.

I am against the flat fee model for royalties.  Although, it looks enticing at first for the franchisee, the flat fee means that as the franchisee grows in sales, there is no more money to pay the franchisor for training, support or infrastructure.

Now, if the franchisor thinks that the franchisee who grows needs less support and training, then I favour a shrinking royalty based on stated volume of sales levels.

I am not aware of a successful franchise system that works on flat fees, and this is a red flag for this franchise, in my opinion.