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August 11, 2016

How much for the brand in a franchise?

A franchise includes various different rights, i.e. the right to use the brand of the franchisor, some sort of territorial protection or local exclusivity), and the right to use the business concept and the operating system developed by the franchisor. All of these different rights are finally combined in on franchise fee or franchise royalty rate.

An interesting but difficult to solve question in valuation is how much of the franchise royalty rate is for the concept and operating system, and how much for the trademark/brand name.

Christof Binder of MARKABLES analyzed this with a peer group of 80 franchised restaurant business, and found that between 40% and 60% of the franchise royalty rate is for the brand name.

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