Franchise Agreement Cost Calculator

In this calculator, and in the great majority of real franchise agreements, both the royalty rate and the advertising fee are charged as a percentage of gross revenue, not net profit. That means those obligations are owed to the franchisor whether the location is profitable that year or not — a structural feature worth understanding clearly before committing to any specific franchise system's terms.

Every real franchise system publishes its own Initial Franchise Fee, Royalty Rate, and Advertising Fee in its Franchise Disclosure Document (FDD), and build-out costs vary by location size, market, and industry — this calculator's default values are illustrative starting points only, not figures from any specific franchisor. Pull the real numbers from the FDD you are evaluating, or from a franchise attorney reviewing it, before treating any output here as a decision-ready figure.

Because Total Obligations Over Term projects Year 1 Revenue forward at the Annual Revenue Growth rate for every year of the Agreement Term, and the royalty and advertising fee percentages apply to each year's larger projected revenue figure — so as revenue grows, the dollar cost of those ongoing fees grows with it, compounding the total beyond a flat multiple of the first year's cost.

Generally yes for Total Obligations Over Term, since more years means more years of royalty and advertising fee payments on top of the same one-time Initial Franchise Fee and Build-Out Cost. Average Annual Cost falls with a longer term at modest growth assumptions, because the fixed one-time costs get amortized across more years even as total revenue-based fees rise — but that trend reverses for aggressive Annual Revenue Growth assumptions: once growth climbs into roughly the top third of this calculator's range, geometrically compounding revenue-based fees outpace the amortization benefit, and Average Annual Cost ends up higher over a longer term instead of lower.