What Is Item 6 in an FDD? Other Fees, Royalties, and Ongoing Costs

If Item 5 tells you the cost of getting in and Item 7 tells you the cost of opening the doors, Item 6 — Other Fees tells you the cost of staying in. Every recurring or contingent fee a franchisee owes after the unit opens is disclosed here, in a single tabular format prescribed by the FTC Franchise Rule. This post explains what Item 6 must contain, how to read each row, and where the table tends to under-communicate the real ongoing burden.

What Item 6 requires

The FTC Franchise Rule at 16 CFR §436.5(f) requires the franchisor to disclose, in a tabular format, all other fees that the franchisee must pay to the franchisor or its affiliates, or that the franchisor or its affiliates impose or collect in whole or in part for a third party. Each row of the table must state:

• The type of fee (royalty, advertising, transfer, renewal, audit, training for replacements, etc.).
• The amount — either a dollar figure or a formula (e.g., "6% of gross sales").
• The due date — when and how often the fee is paid (monthly, weekly, on event).
• The remarks — material conditions, including who collects, whether the fee is refundable, whether the franchisor may modify it, and any caps or floors.

Item 6 covers fees imposed after the unit opens. Up-front fees paid before opening go in Item 5. The two items together describe the complete fee relationship between franchisor and franchisee.

What it actually tells you

A typical Item 6 table runs 10–25 rows. The most consequential rows in nearly every system:

The royalty fee. Usually a percentage of gross sales, paid weekly or monthly. Common ranges: 4–8% in food and retail, 5–10% in services, occasionally a flat dollar amount in low-margin or high-volume concepts. Some systems use tiered royalties (lower rate above a sales threshold) or a minimum royalty floor that applies even if sales are below a target. The royalty is usually the single largest ongoing cost a franchisee pays the franchisor.

The ad fund contribution. Typically 1–4% of gross sales, paid into a national or regional marketing fund administered by the franchisor. Item 6 discloses the contribution rate; Item 11 describes how the fund is spent and audited. Some brands also require a separate local advertising spend — a minimum dollar amount or percentage the franchisee must spend on local marketing, which does not go to the franchisor.

Technology fees. Increasingly common as a separately-broken-out line: POS subscription, back-office software, data analytics, online ordering platform, customer loyalty platform. May be a flat monthly fee, a per-transaction fee, or a percentage of digital sales. Often modifiable at the franchisor's discretion within disclosed limits.

Transfer fees. Paid when a franchisee sells the unit to a new operator. Frequently $10K–$25K or a percentage of the sale price, plus a requirement that the new operator complete training (sometimes at additional cost).

Renewal fees. Paid at the end of the initial term to extend the franchise agreement. Often a percentage of the then-current initial fee, or a flat amount. Renewal is rarely automatic — Item 17 describes the conditions, which usually include signing the franchisor's then-current form of franchise agreement (which may have higher royalties or new restrictions than the original).

Training fees for replacement managers. If a franchisee replaces a manager during the term, the new manager typically must complete the franchisor's training program, often at the franchisee's expense including travel and lodging.

Audit fees. If the franchisor audits the franchisee's books and finds underreported sales above a threshold (commonly 2–5%), the franchisee pays the cost of the audit plus the unpaid royalties and often a penalty.

Late fees and interest. Charged on unpaid royalties or ad fund contributions, typically 1.5% per month or the maximum allowed by law.

What it does NOT tell you

Item 6 is comprehensive about fees paid to the franchisor or its affiliates, but several real ongoing costs are not in the table:

• Required purchases from third parties. If the franchisor requires you to buy ingredients, packaging, or equipment from a designated supplier, the markup paid to that supplier is not in Item 6 — it's described in Item 8. Suppliers may also pay rebates or other consideration to the franchisor that effectively flow through your purchases; those rebates are disclosed in Item 8, not Item 6.
• Local advertising spend (if structured as a minimum spend rather than a contribution to a fund). Look for it in the remarks column or in Item 11.
• Insurance, taxes, royalties on alcohol or other regulated products, real estate, utilities, labor. These are operating expenses, not franchisor fees, and they belong in your own pro forma — not in Item 6.
• The total dollar burden. Item 6 lists rates and formulas, not aggregate annual cost. To estimate ongoing fee load, multiply the rates against an Item 19 sales figure (or your own pro forma) and sum the result. A 6% royalty plus 2% ad fund plus 1% tech fee on $1M of gross sales is $90K per year flowing to the franchisor — a number Item 6 itself does not compute for you.

Reading tips

A few practical habits when reading an Item 6 table:

1. Read every footnote. The remarks column often contains the most consequential information — caps, floors, modifications-at-franchisor's-discretion, the franchisor's right to add new fees during the term. These are the rows where future surprises live.
2. Watch for "modifiable at our discretion" language. Many technology, training, and ad fund contributions can be increased by the franchisor without franchisee consent, often within a disclosed cap (e.g., "may be increased to no more than 4% of gross sales"). The current rate may not be the rate you pay in year five.
3. Distinguish "paid to us" from "collected by us." Some fees pass through to third parties (insurance, software vendors). Others are revenue to the franchisor. The remarks column distinguishes them. This matters when building a pro forma (a written projection of the unit's revenue and costs).
4. Cross-reference with Item 11. The ad fund contribution in Item 6 is governed by the rules in Item 11 — what the fund can be spent on, whether the franchisor must contribute on behalf of company-owned units, whether financial statements of the fund are made available.
5. Compare year over year. New rows appearing in a successor FDD are new fees the franchisor has added. Rate changes show up as changed amounts. Both are signals about how the system is evolving.

Red flags to watch for

Neutral observations rather than rules — none of these is automatically disqualifying, but each warrants a question:

• High combined royalty, ad fund, and required local-spend percentages. Together these determine the share of gross sales flowing out of the unit before operating expenses; Item 19 disclosures and franchisee validation calls are where the unit-level implications get tested.
• Open-ended "modifiable at our discretion" fees without a disclosed cap.
• Audit penalty multipliers above 2× the underreported amount.
• Renewal fees above 50% of the then-current initial fee, especially combined with the franchisor's right to require a new form of agreement at renewal.
• A long list of small fees (tech, training, audit, transfer, modification, system updates) that individually look minor but aggregate into meaningful annual cost.

Item 6 sets the ongoing cost of being in the system. To estimate the cost of getting out, read Item 17 (renewal, termination, transfer, dispute resolution). To estimate what you are buying with those fees, read Item 5 vs Item 7 and Item 8. All of them connect.