The majority charge a percentage of their franchisees` turnover; largely seen as the fairest way to both parties, but some levy a fixed weekly or monthly fee, irrespective of the franchisees` revenue.

Set at the right level for a particular business, and with an appropriate range of safeguards, this method can offer real advantages, not least of which is the fact that franchisees perceive real value for money as their business grows but their payments to their franchisor don’t.

However, set at the wrong level for a business and administered without adequate safeguards, fixed fees can be a millstone round a failing franchisee’s neck and a licence for an irresponsible franchisor to print money.

According to the British Franchise Association, the merits of fixed fee arrangements depend on a number of factors. BFA Director General Brian Smart said: “Fixed fees combined with high initial fees that deliver a real profit to the franchisor, simply from the act of recruiting their franchisees, call into question the franchisor’s interest in the long-term success of their franchisees. “But if a franchised business is organised so that the franchisor makes no real profit from the initial fee, and can only make any real money once the franchisee has succeeded in generating a significant turnover in their business, then that franchisor must have a long term interest in the success of the franchisee.”

A fixed fee ensures a consistent level of support for the franchisee from their franchisor. In variable fee systems, the fee is usually at its lowest when the support demands are at their highest, and at their highest when the support demands of franchisees – the best performing franchisees – are at their lowest. But there are potential dangers.

“Because the franchisor`s income is not linked to that of the franchisee, the franchisor has no pecuniary incentive to see the franchisee increase their income,” added Smart. “Even if the franchisee is making money, the franchisor’s fixed fee may be set at a level where the distribution of profit is unreasonably biased in favour of the franchisor, irrespective of the level of support service they are providing.”

Franchise consultant Euan Fraser, of AMO Consulting, an affiliate member of the BFA, said: “As a proportion of turnover, a fixed fee is at its highest during the early stages of the development of the business, generally a time when franchisees need to keep costs as low as possible.

“Franchisors, on the other hand, may see fixed fees as an aid to business planning, because their income is more certain. They are particularly useful where it is difficult to verify franchisees` sales, for example, where there are a lot of cash transactions.”

The BFA`s concern is that fixed fee systems are open to exploitation by so called franchisors whose only real interest is in franchise sales, rather than the long term success of their franchisees.

“Few systems have such rapidly achievable, but then largely homogeneous franchisee unit turnovers, that a fixed fee is going to make sense both initially and in the long run,” said Smart. “Those few that do could operate just as well on a variable fee other than in those circumstances where turnover monitoring is difficult. This leaves few systems where a fixed fee approach makes sense.”