Service fees refer to recurring payments that franchisees make to the franchisor to cover ongoing support, system maintenance, technology, or administrative services. They are separate from royalty fees and advertising contributions. In franchising, service fees help fund the resources needed to operate and grow the franchise system efficiently.
Service fees in franchising are regular charges that franchisees pay to the franchisor in exchange for specific support services such as training, technology systems, customer service support, or administrative functions. These fees are typically outlined separately from royalty and marketing fees in the Franchise Agreement. Service fees can be structured as a flat monthly charge, a fee per service provided, or a percentage of sales. They are intended to ensure that franchisees have access to the necessary operational infrastructure that supports consistent brand performance. It is important for franchisees to understand exactly what services are covered by these fees—and what services may require additional payments—to properly evaluate the full cost of operating the franchise.
Also see “Royalty Fee.”
Learn more about franchising in The Educated Franchise - 3rd Edition
Service fees and royalty fees are both ongoing payments in franchising, but they serve very different purposes. Royalty fees are paid for the continued right to operate under the franchisor’s brand, use the business model, and benefit from national brand recognition. Service fees, on the other hand, specifically cover operational support—such as technology systems, customer service tools, ongoing training, and administrative resources provided by the franchisor. Before signing a Franchise Agreement, carefully review which services are included in the service fee and whether any important support items require additional fees. Understanding this distinction helps franchisees accurately budget and ensures they know exactly what support they are paying for—and what might cost extra later!
The concept of service fees grew in importance as franchisors expanded their offerings beyond basic brand licensing to include sophisticated technology platforms, call center services, business analytics, and ongoing training programs. By the 1990s, many franchisors began itemizing these costs as separate service fees rather than absorbing them into royalty structures. This allowed franchisors to transparently show franchisees the value of the ongoing support they were receiving. Today, service fees are commonly found in Franchise Agreements, especially in franchise systems that offer centralized support platforms or high levels of operational involvement.
Service fees are a key component of franchise system funding, ensuring that franchisees receive vital support, technology, and operational services needed to run their businesses effectively. While they add to the cost of operating a franchise, service fees also provide franchisees with centralized resources that contribute to brand consistency, operational efficiency, and long-term success.
