Franchise Fees, Royalties & Item 19: Franchisor Guide

The financial terms of a franchise — the initial fee, the ongoing royalty, the advertising contribution, and any earnings figures you choose to publish — are governed by what you disclose in the FDD and what you can defend if challenged. Set them so a franchisee can build a viable business and still pay you, disclose them precisely, and you have a durable system. Set them on optimism and disclose them loosely, and you invite both disputes and regulatory attention.

This guide explains where each financial term lives in the FDD, how royalties and fees actually work, and the legal standard you must meet before you publish any earnings claim.

Where the money terms live in the FDD

A franchisee’s financial obligations are not buried in fine print — the FTC Franchise Rule assigns them specific items so buyers can compare systems side by side.

FDD item	What it discloses
Item 5 — Initial fees	The franchise fee and any other payment due before opening
Item 6 — Other fees	Every recurring or situational fee: royalties, advertising fund, technology, transfer, renewal, audit, late fees
Item 7 — Estimated initial investment	The full low-to-high range to open and operate through the early months
Item 19 — Financial performance representations	Any claim about actual or potential franchisee earnings (optional)

If a fee can be charged, it belongs in Item 6. Charging franchisees something you never disclosed is a recurring source of disputes, and in 2024 the FTC specifically flagged undisclosed fees imposed on franchisees as a practice it is scrutinizing.

Setting the initial fee and royalty

The initial franchise fee is your charge for the right to join the system and for initial training and onboarding. It should bear a sensible relationship to what a new franchisee actually receives. An inflated fee with thi