Technology is constantly evolving, and businesses need to be prepared to adapt in order to stay competitive. Franchisors who don't update their systems and technology may find themselves struggling in the years to come. One way to help ensure that your franchise system is keeping up with the latest trends is by implementing a technology fee in your FDD. In this blog post, we will discuss the benefits of doing so and how it can help your brand in the long run.
A Look at Tech Fees
In 2019 we undertook a thought-provoking examination of the use of technology fees in over 2,191 franchise disclosure documents over a three-year period.
The need for a technology fee is not an obsolete practice. With our current environment where many companies are going digital, it's more important than ever before that your company be able to adapt and keep up with changes in the marketplace so you can offer services properly while also ensuring profitability which will allow them to continue being competitive against other businesses who do invest into new technologies but aren't charging fees like yours!
In order to provide a healthy and sustainable business, most franchise systems need the ability to shift the costs of new or improved technology. This is an equitable allocation as it benefits both entrepreneurs who invest in their own company by receiving more efficient tools for work productivity, while also ensuring that they can cover these expenses through increased earnings.
The fee structure for a technology license can vary dramatically between franchisors, but there are some key elements that every system should have. First and foremost is the ability to honor your commitment as set forth in an FDD filed with state regulators like Commission on High Service Industry (CHSIC). This requires adequate disclosure of all fees charged under item 6 which includes not just licensing costs or usage rates at different stages during operation; it also considers how these numbers may change based on certain factors such as market value fluctuations etcetera.
A couple of other things worth mentioning:
- This fee should not be used as a way to make additional profit for the franchisor but rather it should only cover the necessary expenses associated with keeping the business up and running
- The tech fee should also be included in your initial investment amount so that potential franchisees are aware of all costs upfront
- By having a technology fee in place, you can ensure that your franchise system is always up to date with the latest trends and technologies. This will benefit both your franchisees and your brand in the long run.
Pros to Adding In A Tech Fee to Your FDD
- The technology fee is a great way to differentiate your franchise system from other systems. The tools you choose can increase effectiveness and efficiency in operations, marketing, sales management, and communications with clients or prospects - all while providing an excellent experience for them!
- The technology fee helps spread the costs of new technologies. Often, franchisors bear a large share of these expenses while franchisees are left to foot more than their fair share when it comes time to implement any given innovation or upgrade within your system as a whole - but not anymore! With this innovative strategy that splits up investment amongst all participating entities involved in order to make sure everyone benefits equally from its implementation; you can now afford improvements like high-speed internet access points throughout each location (which will help drive customer satisfaction ratings), computerized systems ensuring accurate inventory management without human intervention ever again.
- Lastly, the technology fee can be drafted generally so that it will adapt to market changes without requiring franchise agreement modifications. For example, if a franchisor did not contemplate having a royalty manager application at the time of the franchisee joining, but now wants to implement one across the franchise system - they have funds from this particular line item in the FDD for implementation purposes. The best part is there is no need to amend or change anything else about their business model or contract.
If you're a franchisor looking for more information on how to include a technology fee or other fees into your FDD, or if you have questions about how this might benefit your system, reach out to us today! We would be happy to help you get started.
Technology should always be advancing - and that includes within the franchising industry - in order to provide a healthy and sustainable business, most franchise systems need the ability to adapt. With a technology fee, you can help protect your brand while also benefiting your franchisees.
For more on how FranConnect can help revolutionize your franchise business, book a demo with us today!