Franchisors derive revenue primarily from three sources – initial fees from new units, royalties from existing units, and other revenue. In the "other revenue" category there are a number of different revenue items included, the most significant of which generally is revenue from company units and proprietary product sales and/or vendor rebates.

As franchise systems develop, grow and mature, it is reasonable to assume that their revenue mix also changes. Using a simple system age proxy for lifecycle changes, one would expect that initial fees constitute the majority of young system revenues, royalty revenues gradually rise over time, and other revenue categories become more significant in the more mature life cycle stages.

We looked at our database of franchisor financial statements to see what the actual numbers would show.

As you can see, the data show confirm that the revenue mix does indeed change as we expected. There is a lot to learn from individual system and sector comparisons of financial performance. Give us a call if you would like to learn more.

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Kevin Bednoski is currently Vice President of Development for Quizno's. Mr. Bednoski joined Quizno's. in 2002 as Director of Development, until February of this year when he became Vice President. He previously worked as Director of Sales for Clear Blue Tech, located in VA.