Franchise Fee: A one-time, upfront payment you make to the franchisor for the right to open and operate under their brand. It's separate from your total investment (buildout, equipment, working capital) and separate from ongoing royalties.
Royalty Fee: An ongoing fee, almost always calculated as a percentage of your gross sales (not profit), paid to the franchisor on a regular schedule — usually weekly or monthly — for as long as you operate the franchise. Across the industry it typically runs 4% to 8% of gross sales, with roughly 6% as a common median.
Territory: The geographic area in which you have the right to operate, and sometimes the exclusive right to be the only franchisee of that brand. Territory rights and their limits are spelled out in Item 12 of the FDD.
FDD (Franchise Disclosure Document): The legal disclosure document, required under the FTC's Franchise Rule, that a franchisor must give you at least 14 days before you sign anything or pay any money. It contains 23 standardized items covering fees, litigation history, territory, and more.
Item 19: The section of the FDD where a franchisor may — but is not required to — disclose financial performance data like average unit sales or profit ranges. Roughly a third of franchisors choose not to include it at all.
Initial Investment: The full range of startup costs to open your location — franchise fee, buildout, equipment, signage, initial inventory, and working capital — disclosed in Item 7 of the FDD as a low-to-high range.
Brand Fund (or Ad Fund): A separate ongoing contribution, usually a smaller percentage of gross sales than the royalty, pooled across the franchise system to fund national or regional marketing and advertising.
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