How Do Franchisors Make Money from Franchisees in New Zealand?

If you’re considering franchising your business, one of the most common questions is how franchisors actually generate income. The short answer is this, franchisors typically earn money through a combination of upfront fees and ongoing payments, but the model should always be structured so both the franchisor and franchisee benefit.

For small business owners in New Zealand, the focus should not be on maximising fees, but on creating a sustainable model that supports long-term growth and attracts the right franchise partners.

Why the Franchise Revenue Model Matters 

Your revenue model is one of the most important parts of your franchise system. It determines how you earn income, how attractive your opportunity is to potential franchisees, and how sustainable your network will be as it grows.

A well-balanced model ensures that franchisees can operate profitably while contributing to the overall growth of the brand. If the model is too heavily weighted in favour of the franchisor, it can limit growth and reduce long-term success.

For small businesses, keeping the structure simple and practical is often the most effective approach.

How Do Franchisors Make Money from Franchisees?

In simple terms, franchisors make money through a combination of initial fees and ongoing payments.

These typically include:

  • An upfront franchise fee
  • Ongoing royalty payments
  • Contributions to marketing or brand development

Not every franchise uses all of these, and the structure can be adapted depending on the business model.

The key is to ensure that each revenue stream reflects real value provided to franchisees.

What Is an Upfront Franchise Fee?

The upfront franchise fee is a one-time payment made by a new franchisee when they join your network.

The short answer is that it covers the cost of onboarding and setting up the franchise.

This may include:

  • Initial training
  • Access to your brand and systems
  • Support during the setup phase

For small business owners in New Zealand, this fee should reflect the time, effort, and resources required to get a franchisee up and running. It should not be set purely as a profit-making tool.

A well-structured upfront fee helps cover your initial costs while ensuring the opportunity remains accessible.

What Are Ongoing Royalties and How Do They Work?

Ongoing royalties are regular payments made by franchisees, usually calculated as a percentage of revenue.

In simple terms, they provide the franchisor with a consistent income stream as the network grows.

These payments typically support:

  • Ongoing business support
  • System improvements
  • Brand development
  • Training and guidance

For many small business franchise systems, royalties are the primary long-term revenue source.

The key is balance. Royalties should be set at a level where franchisees can still operate profitably while contributing to the growth of the overall network.

Do Franchisors Make Money from Marketing Contributions?

Some franchise systems include a marketing contribution or brand fund.

The short answer is that this is used to support collective marketing efforts rather than generate profit.

These contributions are typically used for:

  • Digital marketing campaigns
  • Brand awareness initiatives
  • Lead generation activities

For small businesses in New Zealand, marketing contributions are not always necessary in the early stages. Many systems start with simple, localised marketing approaches before introducing broader strategies as the network grows.

The focus should always be on delivering value back to franchisees.

Can Franchisors Earn Income in Other Ways?

Yes, there are additional ways franchisors can generate income, but these should always be aligned with supporting franchisees.

These may include:

  • Supplying products or materials
  • Preferred supplier arrangements
  • Additional support services

For small business franchise systems, these income streams should be approached carefully. The goal is not to create unnecessary costs for franchisees, but to provide efficiencies and value through the network.

When structured correctly, these additional revenue streams can benefit both the franchisor and franchisees.

How Much Should a Franchisor Charge?

This is one of the most common questions from business owners.

The short answer is, there is no fixed amount, it depends on your business model, industry, and the level of support you provide.

Your fee structure should:

  • Be commercially viable for you
  • Allow franchisees to earn a reasonable income
  • Reflect the value of your brand and systems

For small businesses in New Zealand, keeping fees realistic and accessible is often the best way to attract high-quality franchise partners.

What Is the Biggest Mistake in Franchise Revenue Models?

One of the most common mistakes is focusing too heavily on short-term income rather than long-term growth.

Some business owners set high upfront fees or royalties without fully considering how this impacts franchisee profitability.

This can make the opportunity less attractive and limit your ability to scale.

The most successful franchise systems focus on creating a model where franchisees succeed first. When franchisees are profitable, the franchisor benefits naturally as the network grows.

How Do You Build a Sustainable Franchise Revenue Model?

In simple terms, sustainability comes from balance.

A strong franchise model should:

  • Be simple and easy to understand
  • Provide clear value to franchisees
  • Support long-term growth rather than quick wins

For small business owners, this often means starting with a straightforward structure and refining it over time as the business expands.

Your revenue model should evolve alongside your franchise network.

Final Thoughts

Franchisors make money from franchisees through a combination of upfront fees, ongoing royalties, and in some cases, additional revenue streams. However, the most important factor is not how much you charge, but how well your model supports franchisee success.

If your franchisees are profitable and your systems deliver real value, your income will grow naturally as your network expands.

TMPlus | Tereza Murray Franchising works with small business owners across New Zealand to develop sustainable franchise models, including fee structures that balance profitability, growth, and long-term success. Learn more at www.tmplus.co.nz