For franchisors setting terms and franchisees checking them. Enter monthly sales and the royalty model to see the royalty, marketing fund and GST, and how the effective rate changes when sales rise or fall.
The effective rate is royalty divided by sales. The table under the result repeats the sum at 50% to 150% of your sales figure, which shows where the minimum guarantee bites and how slabs lower the rate as the outlet grows.
An outlet sells ₹10 lakh a month. The agreement charges 7% on the first ₹5 lakh and 5% on sales from ₹5 lakh to ₹15 lakh, with a ₹40,000 minimum and a 2% marketing fund. Royalty is ₹35,000 + ₹25,000 = ₹60,000, an effective 6%. The marketing fund is ₹20,000. With 18% GST on both (₹14,400), the franchisee pays ₹94,400 for the month. In a weak month of ₹5 lakh sales the slab royalty would be ₹35,000, so the ₹40,000 minimum applies and the effective rate rises to 8%.
Pair this with the new store break-even calculator by adding the royalty and fund percentages to its other variable costs, so the outlet's payback reflects what the franchisee actually keeps.
Most agreements use one of three models: a flat percentage of the franchisee's monthly sales, a tiered percentage where the rate changes as sales cross set slabs, or a fixed monthly fee. Many add a minimum monthly royalty and a separate marketing or brand fund contribution. The franchise agreement decides which sales figure the percentage applies to, so read the definition of gross or net sales carefully.
It is the lowest royalty the franchisee pays in a month, whatever the sales. If the percentage works out below the minimum, the franchisee pays the minimum. It protects the brand when a store underperforms and shifts that risk onto the franchisee, so check how often it would apply at realistic sales.
Slab-wise, like income tax: the first slab of sales is charged at the first rate, the sales inside the second slab at the second rate, and so on. Some agreements instead apply one rate to the whole amount once sales cross a slab. If yours does, use the flat model with the rate for your expected sales.
Royalty and franchise fees are payment for a service, so the brand charges GST on them, commonly at 18%. A GST-registered franchisee can usually claim this as input tax credit. The rate and treatment depend on the service and your registration, so the calculator lets you change the rate; confirm it with your CA.
Most agreements keep it separate: royalty pays for the brand and support, the marketing fund pays for campaigns that benefit all outlets. The calculator shows both and the total, because the franchisee's cash outflow is the total.
Commmerce gives franchise networks central control with branch-level flexibility, on one inventory view across every outlet and warehouse.
See Commmerce for franchises
