On June 28th, 2023, I had the pleasure of hosting on behalf of FranConnect a webinar entitled “Franchise Royalties Unleashed: Tools and Tactics for Growth”. During the session, I conducted a pulse survey consisting of questions on royalty management, trends, and rate structures.
We initially captured responses from attendees on the royalty bracket that their brands fall into. The largest segment of replies showed 42% of attendees fell into the 6-8% royalty range followed by 3-5% for 39% of respondents. The remainder of the options fell in with single digits ranging from 9-10% and greater than 10% royalty rates. Based on a previous analysis of over 2200 FDD’s, we found that the average royalty fee for all verticals is 6% of monthly revenues, in which 80% of companies within each vertical charge royalties within 2% of the media. Within the same FDD analysis, we found that 94% charge a royalty fee, with 6% not charging royalty fees. Of the franchise organizations that charge a royalty fee, 92% charge by a percentage value rather than an absolute dollar amount. Those that charge an absolute fixed dollar amount are typically systems that collect revenues by requiring franchisees to buy products and solutions directly from the franchisor or parent company.
On the topic of collections, respondents indicated that 62% collect royalties monthly, followed by 31% who collect weekly. Royalties are the lifeblood of franchising, and our panelists indicated that they each collect via Automated Clearing Houses (ACH) and as a result do not have any outstanding Accounts Receivables.
Our third polling question asked, “What do you use to collect and track royalties”? Thirty-six percent of respondents are using spreadsheets, while 29% use Royalty Management Software such as FranConnect, 12% via invoicing, and 14% indicated “other”.
In our fourth poll (“How do you collect royalty payments from your franchisees?”), 77% of respondents say that they are using Direct Bank Transfers such as EFT and ACH). 12% are collecting a check or bank draft, 5% are using automatic payment systems (authorized recurring payments from bank accounts or credit cards), and 5% are using online payment portals. The fourth poll was used to measure the satisfaction of how effective these collection methods are, and whereas 52% are satisfied with their current collection methods and provider, a whopping 48% are interested in utilizing an improved payment network for their payment transaction. FranConnect is a big proponent of services such as those offered by Flywire (now integrated with FranConnect). The advantage of their system is that they have established a robust payment infrastructure based on their network of payment partners. Through these global, regional, and local banking relationships, Flywire offers convenient payment options and securely processes transactions from over 240 countries and territories, in more than 140 currencies. We like the fact that their invoicing solution streamlines your invoicing process, getting you faster settlements and real-time payment status updates – all while significantly reducing wire and merchant fees.
Our attendees did share a bit of good news, and that is that sales are improving across the board resulting in higher royalty contributions. 10% of respondents indicate that their royalties are significantly higher in the first half of 2023 compared to the last half of 2022. 27% are moderately higher and 27% are slightly higher (amounting to a total of 64% being on the positive side of the ledger). Next, 4% indicated that royalties remained the same, 12% are slightly lower and 2% are moderately lower.
To conclude, the webinar offered valuable industry knowledge and practical strategies for optimizing franchise royalty management and growth. By staying informed about industry trends and utilizing efficient payment networks, franchise businesses can enhance their revenue streams and drive success in the ever-evolving franchise landscape.
You can view the recording of the webinar which featured Mark Siebert (iFranchise Group), Sean Manning (Founder & CEO of Payroll Vault) and Peter Ross (Founder & CEO of Senior Helper and Town Square) by going to: Franchise Royalties Unleashed: Tools and Tactics for Growth
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