Every franchise charges ongoing fees, and the words get used loosely: royalty, levy, fund, service fee. It's fair to ask what each one pays for, who controls the money and what you're allowed to check.
This guide explains franchise royalty fees in Australia in plain English: what a royalty is, what a marketing levy pays for, how the Franchising Code protects marketing funds and what to ask before you sign. Our own fees are the worked example.
The short version. A royalty is an ongoing payment to the franchisor. A marketing levy goes into a shared fund for marketing the whole network, and local marketing is what you spend in your own area. The Franchising Code makes the franchisor keep fund money in a separate account, spend it only on permitted costs and report on the fund every year. At National Floors, the royalty is 6% of gross sales, the national marketing levy is 1% of gross sales, local marketing is at least $2,500 a month and a technology fee of $450 a month applies. An 8% job allocation fee applies to jobs Head Office refers to you, with no royalty on those jobs.
This is general information, not legal or financial advice.
What fees does a franchisee pay?
The ATO's guide to franchising and tax names the common payments: an initial franchise fee, renewal fees, service fees or royalties, advertising fees, transfer fees and training fees. Business Victoria adds lease fees. Which of these apply depends on the franchise, and the disclosure document must list each recurring payment. Three matter most when you're budgeting: the royalty, the marketing levy and local marketing.
Tax is worth a word. The ATO says ongoing royalty payments and levies can be claimed as an expense on your tax return, while establishment and transfer fees are capital and not tax deductible. Ask your accountant how that applies to you.
How do franchise royalty fees work in Australia?
A royalty is an ongoing payment from you to the franchisor, who grants you the right to use its brand name or trademark, as the ATO explains. The ATO adds that franchise agreements often include ongoing royalty payments or levies, and that these typically cover head office expenses such as administration, advertising and technical support.
What a royalty covers can differ between systems. business.gov.au lists what a franchisor gives you, from branding, equipment and shop fit-outs to training, operating procedures and supply and advertising agreements. Ask which of those a royalty covers and which are charged separately.
How the royalty is worked out is set by your agreement. It might be a percentage of sales, a fixed amount or a mix. The Code requires the disclosure document to describe each recurring payment, with the amount or formula used to work it out, who it's paid to, when it's due and whether it's refundable.
A royalty charged as a percentage of gross sales rises and falls with sales. It's worked out on what the business sells, not on what's left after costs, so build that into your budget. And ask what counts as gross sales: does it include GST, refunds, discounts or installation charges?
What does a franchise marketing levy pay for?
A marketing levy is your contribution to a shared fund for marketing the whole network. It's separate from your own advertising: local marketing pays for activity aimed at your own area.
In the Code's terms, a fund like this is a "specific purpose fund". It's controlled or administered by the franchisor (or by an associate for it), the franchise agreement requires you to pay into it, and it must be used for a specified common purpose relating to the franchised business. The Code's own example is a marketing fund for advertising.
Because someone else controls the money, transparency matters. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) says it should be clear whether only franchisees contribute to a fund or whether there are other sources, such as commissions from supplier agreements, and whether the fund benefits franchisees or pays for some head office expenses.
What does the Franchising Code say about marketing funds?
The Code that started on 1 April 2025 sets detailed rules for these funds, and breaches can attract civil penalties. In short, the franchisor, or the associate it authorises to run the fund, must:
- Keep the money separate. Payments go into a separate account with a financial institution.
- Spend it only on permitted costs. That means expenses of the kinds disclosed in the disclosure document, legitimate expenses for the fund's purpose, expenses most paying franchisees agree to, and the reasonable costs of administering and auditing the fund. The agreement can't change this.
- Pay in for its own outlets. A franchisor that runs outlets of the franchised business must pay in for each one on the same basis as franchisees.
- Report every year. Within 4 months of the end of the financial year (31 October, for a 30 June year-end), prepare an annual statement of the fund's receipts and expenses, and give each paying franchisee a copy within 30 days of preparing it.
- Show the detail. The statement must give meaningful information about where the money came from and what it was spent on, including the share spent on administering and auditing the fund.
- Have it audited. A registered company auditor must audit the statement within the same 4 months, and franchisees get the auditor's report within 30 days of the franchisor receiving it. The exception: within 3 months of year-end, 75% of the franchisees who paid in can vote to skip the audit.
Before you sign, the disclosure document must describe each fund you'd pay into: its purpose, who contributes, how much you'd pay, who controls it and what it can be spent on. It must also say whether the franchisor or an associate supplies anything the fund pays for, and whether any of it must be spent for the benefit of your business in particular. A copy of the most recent annual statement comes with it. Our guide to the Franchising Code covers the rest of the Code.
What do our fees look like as a worked example?
Here are ours, as published on our franchise page:
| Payment | How it's charged | What it relates to |
|---|---|---|
| Estimated total investment | $318,200 to $606,750 + GST | Franchisor fees before opening, showroom fit-out, equipment and technology, lease security, security retention amount and working capital (Item 14 of the Disclosure Document) |
| Royalty | 6% of gross sales | Ongoing, as set out in your franchise agreement |
| National marketing levy | 1% of gross sales | National marketing, through a fund |
| Local marketing spend | At least $2,500 a month | Marketing in your own area |
| Technology fee | $450 a month | The systems you run on |
| Job allocation fee | 8% of sales from jobs Head Office refers to you, with no royalty on them | Referred jobs |
In plain terms, six cents in every dollar of gross sales is the royalty and one cent is the national marketing levy. Together that's 7% of gross sales, before local marketing and the technology fee. Local marketing is a fixed minimum of $2,500 a month that you spend yourself.
Marketing is three payments doing three jobs. Launch marketing is the one-off Opening Promotional Fee, which covers a grand-opening campaign. The national marketing levy is 1% of gross sales, paid into a fund. Our franchise agreement doesn't commit us to spend a set amount, or to spend fund money in any particular area. Local marketing is what you spend in your own area: at least $2,500 a month.
Our page doesn't break the royalty into line items, so ask us what ours covers on your discovery call, and check the Disclosure Document you'll receive before you sign. The national levy is paid into a Specific Purpose Fund, so the Code's fund rules apply, and the details must be in that document.
What should you ask about any franchise's fees?
- What is each fee a percentage of? Ask how "gross sales" is defined, and when each fee is due.
- What does each fee cover, and what costs extra? Technology, training, back-office support and renewals can be charged separately.
- Can the fees change? business.gov.au lists this as a risk. The disclosure document must say when the franchisor may vary the agreement on its own, and the Code bars changes with retrospective effect unless you agree in writing.
- Who controls the marketing fund, and who else pays in? Ask whether the franchisor's own outlets pay in on the same basis, and whether supplier payments go in too.
- What can the fund be spent on, and can I see the latest statement? Ask whether the franchisor or an associate supplies anything the fund pays for, whether any of it is spent for your business in particular, and whether the fund is audited.
- What sits outside the fees? Ask whether you'll be required to make significant capital expenditure, such as a refit, during the term.
business.gov.au suggests comparing costs and contract terms across franchises on the Franchise Disclosure Register. To compare with going it alone, price everything the fees cover as if you were buying it yourself, as our guide to franchise vs independent flooring store explains. More questions are in questions to ask a flooring franchisor, and what a flooring franchise costs covers the other costs. To start with a discovery call, check whether your area is open.
Questions
What is a franchise royalty?
An ongoing payment from the franchisee to the franchisor. The ATO says such payments typically cover head office expenses such as administration, advertising and technical support, and the disclosure document must describe how a royalty is worked out.
What does a franchise marketing levy pay for?
Marketing for the whole network, from a shared fund. Under the Franchising Code, the franchisor must keep the money in a separate account and use it only for permitted costs, such as expenses it has disclosed, legitimate expenses for the fund's purpose and the reasonable costs of administering and auditing it.
Can I see how a marketing fund was spent?
Yes. The franchisor must prepare an annual statement of the fund's receipts and expenses, give paying franchisees a copy within 30 days of preparing it and, unless 75% of them vote it away, have it audited. Prospective franchisees get the most recent statement with the disclosure document.
What are the ongoing fees for a National Floors franchise?
A 6% royalty and a 1% national marketing levy, both on gross sales, local marketing of at least $2,500 a month and a technology fee of $450 a month, all plus GST. An 8% job allocation fee applies to jobs Head Office refers to you, and no royalty is charged on those jobs. Check whether your area is open.
Sources
- Federal Register of Legislation: Competition and Consumer (Industry Codes—Franchising) Regulations 2024, the Franchising Code of Conduct
- ACCC: Specific purpose funds for franchise businesses
- ASBFEO: Specific purpose funds
- ATO: Franchising and tax
- business.gov.au: Buy a franchise
- Business Victoria: Buy a franchise
- National Floors: investment, fees and what's included