Beyond the Royalty Rate:

Franchise fees and royalty rates are often the first numbers people look at when comparing auto repair brands. Those numbers matter, but they’re not the whole story. Franchisors earn money in several ways. Knowing where that revenue comes from helps you see how their incentives align with yours.

The Different Ways Franchisors Make Money

Every franchise system needs revenue to operate and support its network. Most franchisors earn revenue from a mix of the sources listed below:

1. Royalty on sales
   This is the most common structure in franchising. You pay a percentage of your gross sales to the franchisor. It naturally aligns your top line growth with payments to the franchisor.
2. Rebates from vendors
   Franchisors may receive rebates or commissions from vendors based on the total volume of franchisee purchases. Pay attention to how rebates are used. Some franchisors credit them back to you, while others retain them.
3. Advertising fund contributions
   Many brands collect a small percentage from each location to support systemwide marketing efforts. These can include national advertising, websites and digital marketing tools. Franchise agreements set a maximum ad fund rate the franchisor can charge, but the amount currently collected is often lower. Both are listed in the Franchise Disclosure Document (FDD).
4. Related-party transactions
   Some franchisors own or are affiliated with companies that supply parts, tires or other products to their network. When franchisees are required to buy from those related suppliers, the franchisor earns income from the margin on those purchases.
5. Real estate and leasing
   In some systems, you lease your location from the franchisor rather than an outside landlord. This can make site selection and buildout easier, but it also means your lease terms and rent are determined by the franchisor or a related company.
6. Technology or service fees
   Many franchisors charge fees to cover required technology or other operational systems. This can include things like shop management software and phone systems. These fees can often include administrative fees (noted in the FDD) in addition to the actual vendor costs.
7. Shared investments or profit splits
   A few franchisors will help fund the buildout or operation of an auto repair shop in exchange for a share of the shop profits. This arrangement can lower the initial investment amount but it also adds complexity because profit-sharing requires detailed rules about which expenses are allowed and how profits are calculated.

How Franchisors Earn Money
Visualized

Auto Repair Shop-Sample Income Statement

Sales
Parts Cost
Labor Cost
Gross Margin
Operating Expenses
Marketing
Occupancy
Other Expense
Total Operating Expense
Operating Profit
Depr, Amort, Taxes
Net Income

Royalty on Sales:

Franchisor earns a % of your gross sales.

Rebates from Vendors:

Franchisor may receive rebates from vendors based on franchisee purchases

Advertising Fund Contributions:

Franchisees contribute a % of sales to a marketing fund managed by franchisor

Related-Party Transactions:

Franchisor or affiliates may earn income from required parts vendors they own or control

Real Estate & Leasing:

Franchisees may lease their shop from the franchisor or a related company

Technology or Service Fees:

Franchisees pay fees for required tech or operational systems

Shared Investment & Profit Split:

Franchisor may help fund the business and receive a share of the profits

Related-Party Transactions:

Franchisor or affiliates may earn income from tech or service providers they own or control

Click each number for a description.

Not every franchisor uses all of these revenue sources. Some rely on just one or two, while others combine several. Those choices can tell you a lot about how a system operates and what it values.

What These Differences Tell You About Each System

How a franchise system earns money can tell you a lot about how it views its franchisees and what its current priorities are.

What A Simple Royalty Model Can Mean

Systems that rely mostly on royalties and advertising contributions are usually focused on expanding their reach and helping locations grow sales. Because the franchisor earns more only when franchisees do, the incentives are naturally aligned around growth and customer success.

What A More Complex Model Can Mean

When a franchise system grows large, the performance of any single shop matters less than the performance of the network as a whole. These franchisors tend to view franchisees collectively and focus on ways to capture value from the network they’ve built.

They may negotiate exclusive supplier arrangements that generate rebates, or take ownership stakes in companies that provide parts, technology or other services to the network. These structures can still create advantages for franchisees, but they primarily reflect the franchisor’s shift toward managing the business as an integrated network rather than a collection of local operations.

There’s no right or wrong model. What’s important is knowing how the franchisor’s structure will shape your day-to-day experience and what it tells you about the kind of support and opportunities you’ll have as an owner.

It’s All In the FDD

The financial model of any franchise system isn’t hidden, but it’s not always obvious either. Every fee, rebate, and required purchase must be disclosed in the Franchise Disclosure Document (FDD). The challenge is making sense of how those pieces fit together to show how the franchisor earns revenue and what that means for you.

When you review an FDD, focus on the sections that explain how money flows through the system, not just what the percentages are. Look at:

• Royalties and fees: What’s charged and how it’s calculated.
• Advertising funds: What is the current contribution, how is it spent and does the franchisor provide an accounting of the fund’s use.
• Rebates and incentives: How the franchisor uses funds it receives from vendors — some return them to franchisees, others retain them.
• Vendor relationships and related parties: Whether any required vendor purchases are made with the franchisor or its affiliates. This may include parts, services, equipment, technology or real estate.

Understanding those details gives you a clearer view of how each franchisor’s model works and how it aligns with your goals as an owner.