Penn Station’s Variable Royalty Program Keeps Revenue Where It’s Needed

Of the many reasons entrepreneurs turn to franchising when opening a business, support provided by the franchisor is one of the most common and critical. Penn Station franchisees enjoy a wealth of dedicated support systems, including marketing, training, corporate-negotiated vendor contracts, and a sophisticated operational model. One particularly enticing support program for prospective franchisees is Penn Station’s variable royalty program, which applies a sliding scale to determine how much a franchisee pays in monthly royalties.

“The royalty a franchisee pays to the franchisor should cover all the services provided by the franchisor,” said Penn Station President Craig Dunaway. “Some brands not only charge a flat rate royalty, but they might also inundate their franchisees with ongoing fees as well. At first glance, the royalty might seem slightly lower at those brands, but the fees above and beyond the royalty more than offset any apparent savings. At Penn Station, we never nickel and dime franchisees with ongoing or excessive service charges outside of the royalty structure.”

Royalty program details

To support the brand’s systematic growth, franchise royalties for Penn Station owners in their first five years with the brand range from zero to eight percent, depending on unit volume. That means that newer franchisees with lower-volume restaurants may pay no royalty at all. After five years, that scale adjusts up to just two to eight percent.

Greg Goddard, Director of Development and Franchising for Penn Station, says the sliding scale royalty provides a boost to franchisees who need a little help.

“We want to ensure we are supporting our franchisee owners at every opportunity,” said Goddard. “If a new owner is just getting on their feet, it makes sense for us to relieve the financial burden as much as possible so that they can focus on building a successful business. Because the scale applies across the system, franchisees don’t have to apply or plead their case for a break on royalties, they are automatically slotted into a lower tier if they need the help.”

According to Goddard, that financial break is not just a gift to franchisees, it helps contribute to the financial strength of the franchise, reflecting Penn Station’s strategy of promoting growth by investing directly in franchisees.

Franchisee support strategy

“Our franchise model is designed to create an opportunity for success of our franchisees,” said Goddard. “Before we make any decision regarding our operations, we always ask, ‘how will this benefit the franchisee.’”

The financial relief provided through the variable royalty program allows franchisees who haven’t yet found a strong customer base to invest more of their revenue into growing and maintaining their customer base. That investment may be in traditional marketing, community outreach, or in-store promotions—whatever will be most effective for the store.

“We want our owners to feel empowered to make adjustments that are going to help their store,” Goddard said. “While we have a certain brand image we want to maintain and protect, by putting a certain percentage of the store’s revenue back into their hands, they can make the best investments at the local level to help their store grow.”

By using a variable royalty model based on unit volume, Penn Station has a direct incentive to promote the growth of each individual franchisee, something Goddard says the franchise has always been focused on.

“We’ve always been attuned to the success of each individual store, and we invest our resources accordingly,” Goddard said. “It’s important that the franchisees can see that in a direct way, and the variable royalty program demonstrates that commitment in very clear terms.”

In addition to demonstrating the brand’s desire to see franchisees succeed, the variable royalty program highlights out the financial strength of the brand overall. Penn Station continues to provide ongoing support while forgoing a potential income stream from certain restaurants that need the help for up to 60 months.

Goddard says that the program also serves as an important reminder to franchisees that the relationship between Penn Station and the brand’s owners is a partnership, with the fortunes of both parties tied together.

“The brand is committed to the franchisee for the long term, and not in just seeing them open more locations for the sake of growth alone. Ultimately, the variable royalty program is just one of many ways that we’ve refined our operations to support franchisees and provide assistance where needed, but it may be the most visible. Our franchise model relies heavily on unit-level economics. It’s not just our mission, it’s our business model to make sure that each and every Penn Station location has a strong opportunity for success."