Zero Royalty vs. High Royalty: Which Food Franchise Model Works?

Opening a food franchise is one of the most thrilling business opportunities today. Food franchises are extremely popular in India due to the country’s desire for tasty food and speed dining. However, when you make an investment decision, you are usually left with one huge question: Do you opt for a zero-royalty franchise or a high-fee royalty franchise?

It is not a minor choice. The kind of franchise model you opt for can determine how much profit you make, the amount of autonomy you receive, and how rapidly your business expands. Let’s simplify it to the bare essentials.

What Does Royalty Mean in a Franchise?

When you open a franchise business, you are utilizing the brand name, recipes, and systems of the established business. As a payback, most companies require that you share some portion of your earnings. Sharing such earnings is referred to as “royalty.”

Typically, royalty is a percentage of your monthly sales. Some brands will take 4%, others 8%, and others even more. It doesn’t necessarily sound huge initially, but as your sales grow, the royalty grows with it. That is why most new investors consider long and hard before agreeing to 

a high-royalty brand.

High Royalty Model: The Pros and Cons

A high royalty scheme implies that you are remitting a significant share of your revenue to the parent. But in exchange, you usually receive:

• Strong brand backing – The organization supports you with promotion, instruction, and even store layout.
• Customer trust – The customers already trust the brand, so they walk in, no persuasion required.
• Clear systems – Everything is already mapped out, from recipes to administration.

But it also has its drawbacks:

• Less money in your pocket – Because a percentage is paid for royalty each month.
• Less autonomy – You have to adhere to company guidelines strictly.
• More stress during lean months – Even if you are making less sales, royalty has to be paid.

Zero Royalty Model: The Pros and Cons

Now consider the zero royalty model. In this case, the company does not collect any portion of your monthly sales. You make what you sell.

Pros:

• More profit – As there’s no royalty, what you make remains with you.
• More freedom – You can usually try local marketing or menu adjustments.
• Lower risk in slow periods – No set fee to contend with.

Cons:

• Less brand power – These brands tend to be smaller or newer, so you might have to bring customers in yourself.
• Limited support – Training, advertising, and other assistance might not be as robust.
• Slower growth – Without a strong brand name, it can take time to gain trust. 

Which Model Is Better?

The reality is, there is no one-size-fits-all solution. Both work, but the better one for you depends upon your objectives.

• If you prefer a secure, planned business where customers trust you from day one, a high royalty model might be more suitable.
• If you prefer to be more independent and have higher profits and more control, the zero royalty model could be the best for you. 

Conclusion

The Indian food industry is flourishing, and on a daily basis, more individuals are venturing into the franchise option. Whether high royalty or zero royalty, the catch is to align the model with your business approach.

If you adore support, structure, and brand trust, then paying royalty may not be a burden. However, if you are optimistic, flexible, and willing to invest the extra effort towards promoting your outlet, then a zero royalty food franchise may be the wiser option for you.