How Much Is Your Franchisor's Promotion Really Costing You?

Fast food franchises pay around 12% of sales in royalties to franchisors but they are the ones who bear the expense of a promotion’s costs, in which the price point is dictated by the franchisor. That's what SmartMoney reports. The journal surveyed franchisees to ask if they are making money on their franchisor’s promotions after cost of food, labor, rent, utilities and other costs are taken out.

• Baskin Robbins annual April 29 promotional of 31 cent scoop night – Franchises lose roughly $1.45 per scoop
• Little Caesars $5 promotional 14-inch pizza – Franchises profit 90 cents per pizza
• McDonald’s Double Cheeseburger Dollar Menu – Franchises profit 6 cents per burger
• Quiznos’ Million Sub Giveaway where the first million people to register for the chain’s Q Club received a coupon good for any sandwich. It expired March 15, 2009 – Franchises lose $2.25 per sandwich
• Subway $5 footlongs – Franchises profit $1.20 a sandwich

In a related matter, AP reports today that Burger King franchisees are suing their franchisor over its $1 double cheeseburger promotion, saying they're losing money on each sandwich and that their franchisor does not have a contractual right to set maximum menu prices.

There is a built-in conflict between franchisors and franchisees. Franchisors make money off royalties on gross sales and franchisees make money from profits after royalties and other costs are deducted from revenues. Losses and lawsuits over discounted items are an indication of franchisor management who is disengaged with franchisees, out of touch with their retail operations and mismanaging systemic conflicts.