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How Much Service Fee am I Owed?
The perennial question asked by every franchisor.
Franchise networks use different MSF (Management Service Fee) methods to help ensure they receive all the MSF due to them. The common techniques are:
- Fixed Fees
- Percentage of Invoices Raised
- Percentage of Monies Received
But regardless of the MSF method, what techniques can we use to know what is due to us.
The first method of Fixed Fees stands on its own. There are a number of disadvantages with this method, however knowing what MSF is due is not one of them. This part is simple and everyone knows what is due when.
Both the other methods rely on the franchisor knowing what they franchisee has been up to and there are a number of methods that are used:
- Spreadsheets emailed to Head Office – Commonly used but reliant on the franchisee completing them and sending them to us. Late receipts and incorrectly filled sheets can lead to delays in collecting MSF and we can only know if the figures supplied are true by performing audits with the franchisee.
- Web Based submissions – very similar to spreadsheets in a way, but online. Has slight advantages over a spreadsheet, in that you can automatically notify (read nag!) franchisees when returns are late and validate them as they are being entered, but are still reliant on franchisees entering the correct information. It’s easier to collate results across franchisees than option 1.
- Centralised Systems – These allow franchisees to manage their business and importantly (for them) raise their invoices or take bookings. This makes it simpler for them, but also means that you have a complete view of their activity. These systems will then be able to calculate exactly what MSF is due to you – and some will also raise the invoices for you and drop them into the franchisees’ ledgers.
In summary, if the centralised system offers benefits to the franchisee (making easier for them to run their business and help them make more money) then they will willing use them and from there the system will be able to accurately calculate the MSF that is due to you whether it is invoice or revenue based.
There are a number of systems available, look for ones which are designed specifically for the franchise sector which can be tailored to fully support your franchise process and this will make it easier for your franchisees to understand the benefits for them.
Franchise networks use different strategies to ensure that they receive all the MSF (Management Service Fees) that they are due. All have advantages and disadvantages and we’re going to look at some of the methods here.
- Fixed fee – Initially this sounds great, because it’s so simple, everyone knows what is due and that’s its main advantage. However on the flip side, how do you set it to the right level. Set it too low and you will not have the funds to support the network, too high and the franchisees will struggle and resentment will build.
- Percentage of Invoices Raised – This is probably the most common option. It ensure that as the franchisees grow, your revenue grows and you have the funds to support your network. You need to know what invoices franchisees are raising, but you don’t need to worry about tracking their receipts (at least for MSF purposes anyway).
Percentage of Receivables – This is common in cash based franchises and sometimes is perceived as ‘fairer’ because franchisees are not paying MSF on any bad debts (although there is a case to say option 2 helps franchisees perform their credit control more effectively). The biggest issue with this method is tracking what’s been received.