Motivations for franchisors to use flat continuing franchise fees

This paper compares the use of flat continuing franchise fees or royalties with percentage-based continuing franchise fees in Australian franchises. The population of Australian franchisors is surveyed to investigate why some franchisors choose a flat continuing fee structure. It is found that franchises using flat continuing fees offer their franchisees similar types of ongoing support throughout the life of the franchise agreement, but provide less ongoing support than franchises characterised by percentage fees. The flat fee franchises also conduct less monitoring of their franchisees, grow at a faster rate, and are less costly to enter than percentage fee franchises. The results suggest that whereas percentage fee franchisors can improve their ongoing income by helping franchisees to increase their sales, the flat fee franchisors are motivated to improve their ongoing income by increasing the size of their systems