A payment made to the franchiser based on the sales turnover of the franchisee.

A payment made to the franchiser based on the sales turnover of the franchisee.

• A. Royalty Fee
• B. Market Research
• C. Franchise
• D. Franchiser

Answer: (A)

Royalties are ongoing payments to the franchisor for the right to use the brand and business system. They’re typically calculated as a percentage of the franchisee’s sales turnover, so the payment rises with higher sales and falls when sales drop. This aligns the incentives: the franchisor earns more as the franchise performs better, and the franchisee pays in proportion to how much they sell. For example, with a 5% royalty on turnover, £200,000 in sales would mean a £10,000 payment. Market research isn’t a payment; it’s a service or activity. A franchise is the business format or agreement, not a payment. The franchiser is the company that grants the franchise, not a payment.

Royalties are ongoing payments to the franchisor for the right to use the brand and business system. They’re typically calculated as a percentage of the franchisee’s sales turnover, so the payment rises with higher sales and falls when sales drop. This aligns the incentives: the franchisor earns more as the franchise performs better, and the franchisee pays in proportion to how much they sell. For example, with a 5% royalty on turnover, £200,000 in sales would mean a £10,000 payment.

Market research isn’t a payment; it’s a service or activity. A franchise is the business format or agreement, not a payment. The franchiser is the company that grants the franchise, not a payment.