The first point to make about Royalties is that good
Franchise systems should look at them not as a payment but rather as a remittance.
It is the Franchisor?s share of the income derived from customers or clients.
The Franchisee collects that fee along with all other revenues from the
customer.
It?s an important concept because it emphasizes that the
customer ultimately pays for everything, including the Franchisor?s royalty,
the Franchisee?s overhead, all costs of sales, employee?s salaries, and the
Franchisee?s profit. Therefore it?s all about the customer ? as it should be.
The Franchisee should want the Franchisor to earn a significant
amount of royalties because that?s really the oil that makes the engine run.
Each Franchisee collects and remits a small portion of that oil to the
Franchisor. All elements of the system can continue to improve as long as the
royalty stream is strong.
The Franchisor?s royalty will be based on the fact that
they have provided a system and strategy that has ultimately served the
customer. The Franchisee delivers that system to that customer. The royalty
represents the Franchisor?s share based on the various parts of the Franchise
system, which has four elements.
The four elements of a Franchise are:
a) Brand
b) Operating
System
c) Support System
d) Franchisee
Brand ? the name associated with the services delivered
in a memorable and satisfying experience to the customer
Operating System ? institutionalizes the excellent
service delivered in a memorable experience so it can be done over and over
again from Franchise to Franchise in a consistent manner
Support System ? helps the Franchisee get better and
better at delivering the service in a memorable experience ? helps a Franchisee
improve their performance
Franchisee ? the individual motivations or reasons for
being in a good system, as well as the talents and experience delivered to the
business.
The Operating and Support systems will generally provide
access to advice at the level of professional consultants in the fields of
marketing, management, advertising, execution of the delivery of the product or
service, customer support, etc. The cost of these types of consultants on the
open market will often far exceed the value of the royalty fees that are
remitted by the Franchisee that participates in a system that delivers these
items from a position of experience. In fact, it?s the exact experience the
Franchisee requires as opposed to open market advice.
Now here?s the test. If each of the four elements of a
Franchise system is evaluated in terms of the percentage of contribution to the
overall success of the business, then the royalty can be assessed in a proper
light. Many people will say that each of the four elements contributes equally
? or 25%, to the overall success. That means that the Brand, Operating System,
and Support System provide 75% of the success formula. Therefore, as long as
the royalty is less than 75%, it?s a good decision to participate in the
system. That?s a little silly, but it emphasizes the point.
Most royalties range from 2% to 10% depending on the type
of system, so as long as the Franchisor?s systems contribute 10% or more to the
success of the business, it makes sense to participate, and remit the
collection of royalties to the system.
**************************************************************
Your Bio: Dennis Schooley is the Founder of Schooley
Mitchell Telecom Consultants, a Professional Services Franchise Company. He
writes for publication, as well as for schooleymitchell.blogging.com and
franchises.blogging.com, in the subject areas of Franchising, and Technology
for the Layman. www.schooleymitchell.com,
888-311-6477, dschooley@schooleymitchell.com.
copyright: YES
