What a franchise fee really buys you

A franchise fee mostly buys you permission to start paying the royalty, along with a sign, a manual and someone who's allowed to tell you what to do. I don't think that's a bad deal. I just think people stare at the wrong number.

What the law says you're buying

A 2025 legal guide sets out the Franchise Act's definition, and it's shorter than most menus. You get the right to run a business the franchisor's way, and to use its mark or its secrets. The franchisor gets the right to keep controlling how you operate, for the whole term.

That last part is why I'd read the definition twice. You aren't only paying for help.

I think the supervision is the point. A stranger walks in expecting every outlet to be the same, and that only holds if nobody improvises.

The fee is the small number

The best look I could find at the franchisor's side comes from Focus Point, a Bursa-listed optical group that also runs a Japanese bakery chain, Komugi. Its 2024 annual report splits franchise fees from royalties in its revenue note.³

What one franchisor booked in 2024, in RM thousands

It isn't quite a fair fight. The group spreads each fee over the life of the agreement, so that bar isn't the cash it collected.³ Even so, royalties came to more than five times the fees.

The segment made RM4.1 million before tax on RM4.3 million of revenue.³ Please don't read that as the margin on franchising, because I can't see how much of the cost of supporting franchisees sits in other parts of the group.

For the outlet's side, there's a 2016 report in The Edge. It put a local Komugi outlet at a one-time RM150,000, plus 6% of gross sales every month.⁴ That's one brand, in 2016, so it may well have moved.

Say a shop on those terms takes fifty thousand ringgit a month. The royalty is three thousand of that, and in a little over four years you've paid a second entry fee without noticing. It's worked out on sales, so as I read it, a month that makes no profit still pays.

The other pockets

Royalties aren't the only pipe, and I'd draw all of them before signing. The same report shows Focus Point renting shops and subletting them to franchisees, and holding RM411,000 of their money in sinking funds for outlet repairs.³

Its 2018 report also mentions sales of products and materials to franchise outlets, inside the food and beverage segment.⁵ So that royalty bar probably undercounts what franchisees pay this group in total. I can't tell you by how much, because the reports don't split it out.

I couldn't find a published table of Malaysian royalty rates, a dated figure I'd trust for marketing levies, or a national failure rate for franchisees. The guide sites that quote ranges are mostly undated or selling franchises, so I've left them out.

What the paperwork does for you

What the Act does is force things into writing. The agreement has to state any franchise fee, promotion fee, royalty or related payment.¹ As far as I can tell, promotion fee is the Act's phrase for what most people call the marketing levy.

The royalty rate has to match the disclosure document.¹ The guide says there's no statutory cap on what a foreign franchisor can charge, though the Registrar of Franchises may ask for a justification if a rate looks high.¹ Here's the order the guide describes, which I'd treat as a timetable worth using.

The paperwork, in order

Those ten days cover the disclosure document, the agreement template and the other approved papers.¹ The walk-away right lets you terminate without giving a reason or paying a penalty.¹ I suspect most people treat the first as a formality and forget the second exists, and I can't think of a cheaper exit.

The rules also tightened when the 2020 amendment came into force in April 2022.² A registration now lasts five years, it has to be displayed at the business, and a franchisee who fails to register commits an offence. The franchisor must file that application on your behalf, so I'd chase it and not assume.²

What you don't walk away with

You also can't really negotiate. Take-it-or-leave-it terms are legal, and a franchisor who customises terms for one franchisee can run into the Act's rules on approval and discrimination.¹ So I'd spend the energy on deciding, not haggling.

Then there's the end of the deal. The guide says it's common for agreements to state that a franchisee gets no goodwill and no compensation for it.¹ And for two years afterwards, the franchisee can't run a similar business, a ban that reaches its directors, their spouses and immediate family, and its employees.¹

So the regulars you built up belong, on paper, to someone else's sign. That doesn't make it a bad bargain, since they might never have come in without the sign.

It does change what the fee is. You're renting a reputation, and you're paying rent on the sales it brings and on the sales it doesn't.