How does a franchisor make money to grow its network?

A franchisor may make money to grow its network in a number of ways, but before a potential franchisor begins franchising it is usual for him/her to have owned and operated a successful and established business. It is usually the concept from the established business that the potential franchisor will seek to develop into a franchise concept, which can be subsequently rolled out to a network of franchisees.  Most franchisors will charge an upfront franchise purchase fee, so that as franchisees sign up there is a stream of income into the franchisor company that can be used to improve the franchised business and to recruit more franchisees to grow the network. Another source of income for a franchisor is the ongoing fee that is payable by each franchisee in exchange for the continued use of the franchisor’s trade marks, know-how, goodwill and operational methodology, as well as any ongoing assistance provided by the franchisor. The ongoing fee is often called a management service fee and is usually calculated and paid monthly, based on a percentage of the franchisee’s gross income. Again, this fee can be reinvested back into the franchisor’s business and may be used in part to develop the continued growth of the franchise network.