How Home-Service Franchises Work: Fees, Royalties, Territories

A home-service franchise charges you three ways. You pay an upfront franchise fee, often $15,000 to $65,000 or more. You pay a royalty every week or month, usually a percentage of gross sales. On top of that you pay a marketing fee, also taken from gross sales. In return you get the brand, the systems and a territory, which is a map area that may or may not keep other people from that brand out of it. Every one of these terms is written down in a federal disclosure document you have to receive before you sign.

Here's how each piece works and where to find it.

The document that holds every number

The FTC's Franchise Rule requires franchisors to hand you a Franchise Disclosure Document (FDD). The FTC says you must get it "at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate."

The FDD has 23 numbered items. For money and territory you'll mostly read these:

• Item 5, Initial Fees: the franchise fee and any territory fee.
• Item 6, Other Fees: royalties, marketing fees, tech fees, minimums, transfer fees.
• Item 7, Your Estimated Initial Investment: the total cash to open, shown as a low-to-high range.
• Item 12, Territory: what your area is and what it protects you from.
• Item 17, The Franchise Relationship: term, renewal, termination, non-compete.
• Item 19, Financial Performance Representations: sales or profit figures, if the franchisor chooses to give any.
• Item 20, Outlets and Franchisee Information: how many units opened, closed and changed hands, plus contact lists of current and former owners.

The upfront fee

The franchise fee buys you the license and the startup training. The FTC's buyer guide says it typically runs "from tens of thousands of dollars to several hundred thousand dollars and may be non-refundable."

Two real examples from 2025 FDDs:

• Mr. Handyman (a Neighborly brand): $65,000 franchise fee. Item 7 puts the total initial investment at $143,150 to $179,600.
• Molly Maid (also Neighborly): a lower $14,900 franchise fee, plus a territory fee of $1 per "target household" in your area. If your territory holds 50,000 target households, that's another $50,000. Item 7 puts the total at $139,900 to $197,200.

Look at how those two get to nearly the same total. A small headline fee doesn't mean a cheap franchise. Always read Item 7, because it includes the truck, tools, insurance, opening marketing and the working cash you'll burn through before the phone rings steadily.

Royalties: the fee that never stops

The royalty is a cut of your gross sales, not your profit. The FTC puts it bluntly: "you must pay royalties for the right to use the franchisor's name, even if you are losing money."

Mr. Handyman's 2025 FDD sets its license fee (their word for royalty) at 7% of gross sales, and 3.5% on material and subcontractor revenue. Molly Maid's is 3% to 6.5% of gross sales. Both FDDs also list minimum fees. If a slow month doesn't produce enough royalty, you pay the floor anyway.

Here's what that looks like with real numbers. Mr. Handyman's Item 19 reports that single-unit franchisees averaged $763,264 in gross sales in 2024. At 7% royalty plus a 2% marketing fee, that's up to about $68,700 a year going to the franchisor. It comes in somewhat lower because materials and subcontracted work are charged at the reduced rate. That money leaves before you pay a tech, a supplier or yourself.

For a sanity check, take your own last year of gross sales and multiply by the royalty plus marketing percentage. Then ask whether the brand will bring in enough extra work to cover that number and still leave you ahead.

Marketing fees and required local spend

Most home-service franchises charge a brand or ad-fund fee, and many also require you to spend money on local marketing yourself. These are two separate costs.

• Ad fund: Mr. Handyman and Molly Maid each charge 2% of gross sales. The FTC warns that "some portion of the advertising fees may be allocated to national advertising or to attract new franchise owners, rather than to promote your outlet."
• Required local spend: Mr. Handyman's FDD requires minimum local marketing of $60,000 in year one, $75,000 in year two, then 8% of the prior year's gross sales. Molly Maid requires $1 per target household per year.

Required local marketing usually means paying for leads: search ads, Google's Local Services Ads, lead sites. The brand can make the phone ring. It can't answer the phone for you. If you're paying $5,000 a month to make it ring and the calls go to voicemail, you've wasted that money twice. We covered that in why buying ads and sending calls to voicemail wastes the ad and what a lead really costs on Angi, HomeAdvisor and Thumbtack.

Territories: read the exact words

Your territory is usually built from ZIP codes and sized by households or population. Molly Maid, for example, scores ZIP codes on household counts, income and other market factors.

What matters most is what the territory protects you from. If the franchisor doesn't grant an exclusive territory, federal rules require this exact sentence in Item 12:

"You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control."

Even an "exclusive" territory has limits. The FTC notes the franchisor "may have the right to offer the same goods or services in your sales area through its own website, catalogs, other retailers or competing outlets." For home services, check these in Item 12:

1. Can another franchisee of the same brand take a job in your ZIP codes if you're booked up?
2. Who gets the lead when a customer calls the national number or books online with an address inside your area?
3. Does the parent company own sister brands (a plumber, an electrician, a restoration company) that can work your area under a different name?
4. Do you have to hit a sales minimum to keep the territory, and what happens if you miss it?
5. Can the franchisor shrink or redraw the map?

Term, renewal and getting out

Item 17 tells you how long the deal lasts and how it ends. The FTC says "renewals are not automatic." At the end of the term the franchisor can decline to renew or offer you different terms. Read the non-compete too. Many agreements limit you from running a similar business in the same area for a period after you leave. That can matter a lot if you already worked that trade before you signed.

Earnings claims: only Item 19 counts

Item 19 is optional. A franchisor that gives no numbers must say: "We do not make any representations about a franchisee's future financial performance or the past financial performance of company-owned or franchised outlets." If they do give numbers, the FTC says no other spoken or written earnings claim can be made unless it appears in Item 19. So if a salesperson tells you on the phone what "most owners clear," ask them to show you where that number is in Item 19.

Averages also hide the spread. Mr. Handyman's Item 19 shows single units averaging $763,264 and 5-to-6-unit operators averaging $2,248,084. Read the footnotes to see how many owners were above or below the average and what costs were left out.

State rules on top of federal

The FTC rule applies in every state. A group of states, including California, Illinois, Maryland, Minnesota, New York, Virginia, Washington and Wisconsin, also require franchisors to register the FDD with the state before selling there. Some states have laws protecting franchisees after the sale, too. Registration means the state reviewed the filing. It doesn't mean the state approves of the deal. Check your state's rules before you sign anything.

Before you sign: a short checklist

• Get the full FDD and take the 14 days. Don't let anyone hurry you.
• Add Item 5 and Item 7, then set aside at least six months of living money on top of that.
• Multiply your realistic gross sales by royalty plus ad fund, and include the minimums.
• Read Item 12 word for word and get answers to the five territory questions above.
• Call owners from Item 20, including the former ones. The FTC calls this "the most reliable way to verify the franchisor's claims."
• Have a franchise attorney read Item 17 before you pay a dollar.

If you're already independent and are weighing a franchise because you can't get enough calls, compare the ongoing fees against fixing your own phone and Google presence first. Our breakdown of franchise handymen vs. a local pro and the guide to getting named by ChatGPT and Google AI show what that route involves.

Related: Private Equity Is Buying Up Plumbing and HVAC Shops: What It Means for the Local Pro · The Shop Down the Road Just Sold to a National Brand. Here's What You Do Next.

Photo by delphinmedia on Pixabay.