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Every franchise has two main categories of cost: what you pay to get in, and what you pay to stay in. Understanding both is essential to comparing opportunities honestly.
This is a one-time payment to the franchisor for the right to use their brand, systems, and support for a defined term, often 5 to 10 years with renewal options. It typically covers your initial training, access to operating manuals, and the franchisor's cost of onboarding you as a new franchisee. Initial fees vary enormously by brand and category, from a few thousand dollars for a home-based concept to six figures for an established retail or restaurant brand.
Royalties are an ongoing fee, almost always calculated as a percentage of your gross revenue, not net profit, paid to the franchisor on a weekly or monthly basis for as long as you operate under their brand. Most royalty rates fall somewhere between 4% and 8% of gross sales. Because royalties are based on revenue rather than profit, they come due whether or not your location is actually turning a profit that month, which is an important detail to model into your cash flow projections.
Most franchise systems also charge a separate marketing fund contribution, typically 1% to 3% of gross revenue, pooled across all franchisees to fund national or regional advertising. This is distinct from your own local marketing spend, which many franchisors also require as a minimum monthly commitment.
Beyond the headline fee and royalty rate, look for technology or software fees, required equipment or supplier purchases (sometimes at above-market prices from approved vendors), renewal fees, and transfer fees if you ever sell the business. All of these should be disclosed in the Franchise Disclosure Document; see our guide to Franchise Disclosure Documents in Canada for what else to look for.
On $200,000 in annual gross sales, a 6% royalty plus a 2% marketing fund contribution works out to $16,000 a year, before you've covered rent, staff, supplies, or your own income. When comparing two franchise opportunities, don't just compare the initial fee; model out what the combined royalty and marketing fund percentage costs you annually at a realistic revenue level, and weigh that against the support, training, and brand strength you're getting in return.
For the full picture of what you'll invest and how to plan for it, read our step-by-step guide to buying a franchise in Canada and our guide to financing a franchise purchase. Ready to compare real opportunities? Browse franchise categories or search the directory.
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