How to Request 6% Royalties Without Being McDonald’s.

This percentage might seem like an achievement only accessible to industry giants. However, the experience of three American pizza franchise chains, of medium-small size, reveals that it’s not necessary to be a giant to impose a 6% royalty fee. During my travels in the United States, I had the opportunity to closely explore three chains that present different formats: Pizzeria Schmizza is renowned for its casual atmosphere and creative approach, Sarpino’s stands out for reliable delivery service enriched with gourmet options, while Squisito Pizza & Pasta offers a culinary experience anchored in tradition with a varied range of choices. Despite their unique characteristics, these businesses have proven the possibility of maintaining a 6% royalty fee, even without the enormous renown of internationally recognized brands.

Case Study 1: Pizzeria Schmizza.

The Pizzeria Schmizza franchise chain, with its approximately 25 locations scattered between Portland, Oregon, Vancouver, and Washington, was born from the ingenuity of Andre Jehan. This Portland student opened his first establishment in 1993 and, thanks to bold marketing, promoted his brand with always edgy gimmicks, often sparking controversies but undeniably effective. One of his most debated moves was hiring homeless people to walk the streets with provocative signs, such as “Pizza Schmizza paid me to hold this sign instead of asking for money.” Jehan also opted for less divisive initiatives, such as during the Covid-19 crisis, where he attached a roll of toilet paper to every pizza order, responding with irony to the widespread shortage. These strategies solidified a community of over 60,000 followers.

Despite the marketing and commitment to social causes, such as support for non-profit organizations, there remains a question about the 6% royalty fee. The answer lies in Schmizza’s innovative affiliate program. Before becoming a franchisee, the chain, through its Franchise Disclosure Document, offers potential affiliates a one-day operational experience (1-day stage). This includes a meeting with the CEO and visits to various locations to discuss operational activities and future goals. If the affiliate chooses to join, the costs of this training stay are fully deducted from the initial fee due to the franchisor.

Case study 2: Sarpino’s Pizzeria

With the 6% royalty fee, it differs significantly from Schmizza. The network is broader, including 42 locations in nine American states, and has roots that go back to a trip to Italy. Inspired by authentic Calabrian recipes learned in a restaurant run by a certain Sarpina, Gerry Koutougos decided to bring this culinary heritage to the United States. A closer analysis reveals that Sarpino’s affiliate strategy focuses decidedly on technology, ensuring a reduction in labor costs and high efficiency, thanks to an obsession with process optimization. Scott Newolet, sales director, emphasizes how the advanced technological infrastructure, including artificial intelligence that manages orders with unfailing accuracy, is a major draw for potential affiliates. It’s this technological implementation that allows for reduced operating costs and increased profit.

Third Case study: Squisito Pizza & Pasta.

The last case study presents an even greater contrast. Gennaro Di Meo, originally from Monte di Procida, who moved to Maryland, founded a chain that now has 25 outlets. Squisito Pizza & Pasta stands out for the diversification of its offerings: Di Meo reveals that pizza generates only 40% of revenue, while the remaining 60% comes from pasta and other sauce-based products.

Squisito’s affiliate formula is particular for two reasons. First, the training process is extremely detailed, with a strong emphasis on culinary preparation and food safety, covering operational management and marketing strategies. The most revolutionary point, however, is the variable royalty system: they are not fixed at 6% but decrease based on the improvement of franchisee performance. This approach incentivizes performance, following a meritocratic logic.

What We Can Learn

• Feasibility and Win-Win Approach.

A franchisee’s business model must be profitable enough to support a 6% royalty fee. This results in a significant operating margin for the franchisee’s economic account.

• Leveraging Technology for Efficiency.

IT solutions and exclusive patents can optimize processes and reduce overall costs.

• Innovative and Measurable Marketing.

Effective marketing support that can truly impact attendance and sales numbers.

Before determining the value of royalties, evaluate the value you offer to your affiliates. Don’t take for granted that you’re the best; it’s essential to offer concrete value and make calculated calculations to request sustainable and fair compensation. Want more advice to increase royalties for your franchising network? Contact me.