Franchisors work to innovate, captivate, and eventually multiply their business. Some attribute the first franchising contract to Albert Singer who sold his sewing machine to a widespread market. Mr. Singer refined his product so precisely and had such conviction for his brand that he created the franchising model to expand his brand’s reach while obtaining royalties on each sale. As ambitious franchisors find success and additional units are purchased, the franchisor relies on royalties to support the brand and image; and to perpetuate its momentum. Franchise royalties are a key metric that provides the franchisor with an accurate snapshot of its health. Royalty payments must be handled with care and efficiency in order to actively monitor the pulse of the business.
How Royalty Fees Are Collected
To collect royalty fees, a franchisor has to collect sales information from the franchisee, which is typically emailed or sent in manually. In some instances sales data can be pulled from the point of sale (POS) system; however, sometimes the franchisor doesn’t get the sales info from the franchisees on time – causing a delayed receipt of a significant source of revenue.
Once the sales information is collected, the franchisor calculates the royalties. Typically, this is a manual process aided by spreadsheets -- This can become complex with multiple units, different royalty rates (depending on when they signed their FDD); or a tiered royalty system where franchisees pay more royalties depending on the volume of sales or other criteria. Parker Pieri, former Vice President of Finance of The Dwyer Group, said his main challenge of calculating royalties for their approximately 11 brans was that it was very time intensive with their tiered rates. Using an automated royalty-calculation software program could instantly improve the efficiency of their royalty collections process.
Franchisors who invoice franchisees for royalties find themselves stuck in a multiple step process which includes generating invoices for the franchisee, then creating forms for banks or other parties to debit the accounts. This leads to them waiting for royalties to be paid by check -- Then, repeating this process every week, two-weeks, or month.
Using an Automated Royalty Reporter
Before using the ProfitKeeper royalty collection software, Synergy Home Care was sending out manual invoices to their franchisees. Waiting for royalty checks from some franchisees caused painful cash flow issues. By using an effective royalty collection software, the franchisee’s royalties are automatically debited from their account, resolving major revenue concerns.
Using a royalty reporting system, sales info is automatically imported from the franchisees POS system. If the franchisee does not have a POS system, they access the system online and easily enter the sales information for the franchisor. The automated royalty reporter calculates the royalties, franchise fees, or other revenue items using the agreed upon calculation including as many tiers, rates, etc. as the franchisor needs. The royalty franchise software will notify the franchisee on how much they owe, provide royalty reports for the franchisor, along with a custom bank file that can be sent to the franchisor’s bank in order to debit the franchisees bank account.
Value of an Automated Royalty Reporter
Franchisors strive for multi-unit success, but knowing each units current activity through royalty reporting means the ability to identify struggling units while cultivating the rising stars. The greater the reach, the more time-consuming royalty reporting can become without an automated system. Successful franchises such as Pearle Vision have various royalty calculations, but purchasing a royalty reporting software resolved their issues and ultimately saved time and valuable resources.
Pizza Inn, another successful franchise chose to purchase a royalty reporting software program to assist in calculating the various royalty rates which changed based on their FDD signing date. Aurelio’s Pizza chose a royalty reporting solution to simplify their royalty debiting process. They also use the system for custom bank files further improving on timely payments.
These time-saving techniques improve the royalty process on both sides while providing transparency for both the franchisor and franchisee. With advanced analytics on the royalty reporter, it’s easy to visually monitor the pulse of each unit.