Can I get compensation for a franchise product I created?

By Jeff Elgin

Opinions expressed by Entrepreneur contributors are their own.

I created, tested, produced and marketed a successful new product in my store. Now the franchisor may be interested in rolling it out to the whole system. Is there an industry standard to compensate franchisees for this type of enhancement to the system?
This is a great question and, like so many others, the answer is sort of "Yes and No."

Most franchise agreements have a clause that specifically says that any new product or service developed by a franchisee belongs to the franchisor. It's not uncommon for franchisees to introduce products, and that’s why they make it clear that any innovation of their system is theirs to do with as they please. In the case of McDonald's, for example, the Big Mac and the Filet of Fish were both products developed and tested by a franchisee and then expanded systemwide by the company.

Having said that, it is quite common for franchisors to provide recognition and kudos to a franchisee for developing a new product. They may also provide some monetary consideration to offset any direct expenses incurred by the franchisee in the development and testing of the new product. This was the case when I developed a product in a video-rental franchise in the early '80s--the franchisor gave me a ton of recognition and awards for creating the new product and also offset some expenses I had incurred.

But it's almost unheard of in my experience for a franchisor to provide any monetary consideration above this minor level. As an example, I've never heard of a franchisor granting a "royalty" consideration or any other ongoing payment. A good franchisor wants to encourage this sort of innovation, and that’s why you might get some awards or recognition. But unless your contract says differently, that’s probably going to be all you get.

The real benefit you receive, along with all the other franchisees in your system, is that you’ll be able to benefit from innovations developed by other franchisees and passed on to you by the franchisor. This is one of the strengths of a good franchise system and it should pay you back in spades over time for the contribution you’ve made through the product you’ve developed.

Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.

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