Prospective franchisees sometimes budget only for the initial investment and miss how ongoing royalties affect long-term cash flow, especially in slower trading months. Because royalties are usually calculated on turnover rather than profit, a franchisee still owes the royalty even in a month where costs eat into margins. Reading the full disclosure document, not just the headline franchise fee, is essential before signing.
Source: Consumer Protection Act 68 of 2008
Frequently Asked Questions
Are royalty fees usually based on turnover or profit?
Turnover — meaning the franchisee owes the royalty percentage regardless of how much profit was actually made that month.
Is a franchise disclosure document legally required in South Africa?
Yes — the Consumer Protection Act requires franchisors to provide a disclosure document with specific financial and legal information before an agreement is signed.
Can franchise royalty rates be negotiated?
Generally no — royalty structures are usually standard across all franchisees in a network, unlike some other commercial contract terms.