Lump sum payment formula. The term is lump sum. Royalty in a franchise - what is it?

In order to use the name already famous brand(to be a representative), to promote his goods and services, it is necessary to make payments to the franchisor. There are two types of payment - lump sum payment and royalty. The difference is that royalties are ongoing payments that are made once a month. A lump sum payment is a one-time payment. Each brand may require a different percentage of the royalty and lump sum payment, the amount of which depends on a number of factors.

Types of payments for a franchise

Building a business through joining a franchise is one of the most popular types for businessmen. In essence, the partner receives a ready-made model, low prices on the purchased product, trained personnel and a recognizable brand. Very advantageous offer, given that you will need to make only one lump sum payment and a monthly royalty, which is significantly less in amount.

Many entrepreneurs, faced with the concept of lump sum payments and royalties, do not fully understand their meaning. IN this issue it is necessary to thoroughly understand, especially for those businessmen who want to open a franchise facility. The franchise consists of several types of payments, but the most significant is the lump-sum license payment.

What is a lump-sum license payment and how is its amount calculated?

Today, franchise trading is becoming quite popular - it allows you to avoid many organizational problems and get a fully functioning business with a minimum investment. Many entrepreneurs do not understand the principles of a franchise and do not even consider it as a business option. Therefore, we decided to reveal the key concepts, tell what a royalty in a franchise is and how it differs from a lump sum fee.

Introduction

A franchise is the right to use the trademark and business model of an existing enterprise. By purchasing a franchise, you can open a branch of the company, completely adopting its concept, operating principles and using its internal reserves.

Franchises do not have clear rules - each company sets its own conditions and prices

The business that sells you the franchise is called a franchisee. It gives you the rights to use the business model, requiring you to strictly comply with certain requirements for the quality of products, services, trading platform and various production processes.

Please note: By purchasing a franchise, you are not purchasing a trademark or storefront. You become part of the company and will have to promote and popularize it.

How to buy

Do you want to buy a franchise? Then you should know that payments can be divided into two types:

1. The down payment is called lump sum.
2. Monthly “rent” for the use of trademarks and equipment, called royalties.

The lump sum payment is paid upon purchase; it is a one-time payment, the amount of which may vary depending on various conditions. Royalties are ongoing expenses that the franchisee spends on you. The lump sum fee and royalties constitute the fee for using the franchise. Moreover various companies can charge only one type of payment from their new partner. The amount of payments can be constant or calculated individually based on various parameters. On average, royalties vary from 5 to 15% of total sales.

It is noteworthy that some franchisors may additionally withdraw money from their partners for carrying out promotions. This is discussed in advance when concluding a contract and is written down in the contract, so extra costs will not come as a surprise to you.

When purchasing a franchise you pay lump sum

How are royalties paid?

Royalty is the main payment made by the franchise. This word translated from French as “Share”. It refers to the monthly (less often weekly, quarterly or annual) payment that the partner pays to the company for its services. Royalties can be accrued in three ways:

1. A certain percentage of the total product turnover. This is the most common operating scheme used by most franchisees.
2. A fixed amount to pay for services. Typically, this option is used in businesses where it is impossible to accurately calculate profits, and the franchisee plays it safe by charging a fixed amount from the partner. In return, he receives a brand, advertising, support from lawyers and technologists, and a general business model of work.
3. A rate equal to a certain percentage of turnover minus the total amount of expenses. Typically, such a scheme is used where there is no single markup on goods, and it can vary from 15 to 200 percent or more.

Read also: Partnership of Faith: authorized capital, constituent documents

How is the lump sum payment paid?

Now let's look at what a lump sum fee in a franchise is, how it is paid and what it depends on. The lump-sum (initial) payment is paid once. Typically, an entrepreneur needs to pay the entire amount at once, although other options are possible, broken down into several parts. This payment allows the franchisee to pay all costs for launching a new branch, staff training, equipment of a retail/production premises, network promotion and equipment supply. The amount of the lump sum contribution may be fixed or vary depending on various factors. Each company has its own practice of calculating these fees, so carefully study the conditions for obtaining a “license”.

The lump-sum contribution will go towards your training and opening a new outlet

Are there free franchises?

This question is asked by almost all beginning entrepreneurs, because not everyone has the money to pay the down payment. Free franchises do exist, but they are quite rare and are usually distributed for the purpose of developing a dealer network. That is, the main company produces certain products, and you become its dealer, selling them on the market. In this case, there may be no lump sum contribution, and the royalty will be maximum. But anyway it's good option for a novice entrepreneur - you can start working with minimal investment, earning real money. The income will be quite low, but it is still better to have a bird in the hand than a pie in the sky. The only significant disadvantage is that the franchisee will probably want to set fixed prices for their goods, while requiring them to sell only them. It turns out that lump sum payments area kind of payment for freedom and guaranteed income, while its absence means complete dependence on the conditions and requirements of the franchisee.

Example of a business without contributions

Most popular example similar business — network marketing. By signing the contract, you receive the goods, training and promotional materials, after which you begin selling the products. Product prices are fixed, and you receive a certain percentage from each sale. Some network companies they demand to purchase the first batch of goods from them, the latter issue it for sale, but their operating principle is the same. To start such an online business, you don’t need an office, staff, and even registration as a private entrepreneur - you will sell items to your colleagues, acquaintances, friends, showing them in catalogs. There is a good one in this business career growth, especially as you successfully network and attract new employees.

Doing business in modern conditions involves many risks and investments. But there is a way to reduce risk, reduce investments and time for the so-called promotion of a company, if you use franchising. Let's talk about this technology and find out its advantages and disadvantages.

Franchising concept

Many terms used in business are unfamiliar or misleading. Nevertheless, we will have to come to terms with the elimination of our own illiteracy in modern economic names.

So, franchising is the organization of a business on the basis of an agreement, under the terms of which the franchisor company (product owner) transfers to the entrepreneur or franchisee company the rights to sell the franchisor’s services and product. In other words, the franchisor - the owner of the brand - on a contractual basis transfers the right to use a trademark, technology or other product successfully operating on the market. A franchisee can be an individual or organization that purchases a product and the right to use a brand on the basis of a concession agreement.

Terms of the agreement

The concluded agreement provides for the following provisions:

• The franchisee company undertakes to sell the product using the seller's name, trademark, marketing technologies, advertising and support mechanisms, following the business rules established by the franchisor.

• The franchisor supports the franchisee by providing all the resources necessary to get started - advertising, material, consulting, and provides maximum discounts on the purchase of goods and equipment. The financial costs of preparing and opening a retail outlet are borne entirely by the franchisee. Such an agreement is called a franchise and is defined as a ready-made business system that makes it possible for a company to start operating by making profits, bypassing the difficult initial starting stage.

Of course, all this does not happen for free. And here the obligations of the brand buyer, called lump sum and royalties, come to the fore. Now let’s figure out what the cost of a franchise agreement is made up of, what contributions and with what frequency will be required when concluding such an agreement.

Franchise: lump sum, royalties and investments

The use of franchising significantly reduces risks and guarantees a quick and successful entry into the market. The franchise has a certain cost, which includes:

• A lump sum payment, paid at a time and confirming the right to use the brand. Its size is established in the terms of the agreement depending on the degree of fame of the organization offering the franchise.

• A periodic payment called a royalty is paid to the owner of the trademark. This is a kind of analogue of rent, the amount and frequency of payment of which is also set by the seller.

A novice businessman should remember that, in addition to purchasing a franchise, he will have to make investments, including the acquisition of fixed assets (premises, equipment) and working capital. But often part of the lump sum fee covers the costs of supporting the opening of a business, staff training, advertising and legal support, as well as assistance in establishing accounting.

Lump sum payment

Let's define the essence of the lump sum contribution. This is the most significant payment as part of the franchise, giving and confirming the right to operate trading activities under the franchisor’s brand, using its proven technologies and, of course, products.

At its core, the lump sum fee represents the actual price of the purchased license. The main criterion for its size is the predicted economic effect calculated by the selling company. The lump sum payment is paid once in one amount. It is possible to use installment plans, but for a fairly short period of time.

Royalty payment: concept and meaning

In addition to the one-time fee, the franchisee, in accordance with the terms of the franchise, regularly pays the copyright holder monthly, quarterly or annual payments. This is a royalty. This payment is part of the income received by the brand buyer in the course of his own trading activities. Its amount can be stipulated under the terms of the contract in a fixed amount or as a percentage of gross income.

To carry out effective activities of the franchisee, the royalty payment should not be inflated, since similar cases The profitability of the enterprise decreases so much that there is no point in buying a franchise. The same criteria apply to the size of the lump sum contribution.

But the ill-considered small size of the royalty will not allow the franchisor to carry out effective management network of companies, i.e. the key to franchising success is the optimal calculation of basic payments. Therefore, the question of what royalties and lump sum fees in franchising are can be answered this way: this is an indicator of the level of profitability from the franchise. Basically, it is the size of the royalty that determines the profitability of this acquisition.

Interaction of the parties

Ideally, each party in franchising pursues its own interests - making a profit, minimizing risks. The franchisee receives a profit in the process of activity based on the privileges acquired under the franchise, and the franchisor, who is interested in the high profitability of the company, receives a monthly remuneration in the form of a royalty payment.

Therefore, conscientious partners interested in each other do not inflate the amount of contributions, setting them on the basis of realistically predicted economic benefits, determined by calculation and based on the practice of sales already made. There are many examples of such cooperation in global business.

So, we found out that royalties and lump-sum fees are remuneration from the copyright holder, paid by the buyer for the services of granting the right to use intellectual property.

In the accounting registers of both parties, the conclusion of a commercial concession agreement is reflected in balance sheet accounts 04 “Intangible assets” and 98 “Deferred income”; for the amounts of periodic payments (royalties and lump-sum contributions), accounting entries are made by debiting and crediting account 76 “Debtors and creditors."

A lump-sum (one-time) payment is used in itself quite rarely. It is used mainly in cases where the buyer of the license is a company unknown on the market, and there is doubt whether it will be able to successfully release and commercialize the development. Only a lump sum payment can be applied if it is extremely difficult to control the volume of products released under the license. In this case, the licensor may simply not receive the data necessary for the calculation.

Lump sum payments(fixed amounts paid at a time or in installments) is recommended to be used if all rights to the subject of the license are transferred to the licensee, or the agreement is concluded with a little-known licensee, control over whose activities is difficult. This form of payment is particularly beneficial to the licensor. It significantly reduces its risk, eliminates the need to control the activities of the licensee, and provides the licensor with enough a large amount(although with royalties the total volume of payments may be higher). The size of lump sum payments varies quite widely: 5-25% of the total amount.

Due to the need to pay significant amounts before receiving profit (income), more high degree risk the licensee does not always agree to a lump sum payment.

It is impossible to accurately calculate the size of a lump sum payment by simply adding the amounts determined on the basis of royalties due to changes in the value of cash and inflationary processes. With a lump sum payment, the licensee acts as a lender, and the licensor acts as a loan recipient. This determines their behavior WHEN concluding a license agreement. The licensor must strive to receive an amount that, if invested in the bank, would provide him with a profit, in amount and time of receipt (together with the amount invested in the bank) equal to payments in the form of royalties. In turn, it is beneficial for the licensee to reduce the settlement price to such a value that the difference between the royalty and the lump-sum payment is equal to the cost of the loan. The reduction (discounting) factor is calculated using the compound interest formula:

where A i is the discount factor for the amount of royalties received in the i-th year;

i - the number of years following the accounting year (the accounting year is considered zero);

r - discount rate (%).

The discount rate should not be lower than the commercial loan rate for long-term credit transactions, otherwise it would be more profitable to place money in the bank. The value of the discount factor should be determined in advance for the most common discount rates and terms of licensing agreements. Discounting method, i.e. bringing cost indicators different years to a comparable form, allows you to recalculate current payments in the form of royalties into lump sum payments and vice versa:

,

where C pi - royalties that must be paid in the i-th year;

C ri - net discounted revenues for the license in the i -year;

i is the year of payment in the form of royalties.

The estimated price of a license for lump sum payments is determined by the formula:

To encourage the use of facilities intellectual property licensee, the payment of fees should be closely linked to this fact. Thus, when paying a lump sum payment in two or three installments, it is advisable to time the transfer of the first part to coincide with the conclusion of the contract, the second - to the development of the facility by the licensee, and the third - to the production reaching its design capacity. The initial payment, as a rule, must reimburse the licensor for its costs of marketing, concluding an agreement, transferring technical documentation, and, under certain conditions, the costs of developing a scientific and technical achievement. If a lump sum payment is transferred at a time, it is recommended to associate it with the development of the facility.

A lump sum payment is present in most licensing agreements not as the only type of payment, but as a kind of advance payment paid to the licensor after the transfer of documentation. The lump sum payment usually accounts for 10-20% of total price licenses.

IN recent years an increasing number Russian citizens are considering various options in the hope of improving their financial situation. Some of them become individual entrepreneurs and develop businesses in the industrial or commercial spheres (also considered as an option for primary or additional income). Other citizens who have savings and a main job prefer to make private investments in various financial projects. The ideal option is one that allows novice entrepreneurs to run their business under an already well-known brand.

Royalty - what is it?

Royalty is a financial reward paid by an entity entrepreneurial activity the franchisor (franchise owner) not only for information support and maintenance business, but also for staff training and promotions.

Currently, many entrepreneurs are seeking to acquire franchises of those companies that have been on the Russian market for quite a long time and have been able to conquer good reputation from end consumers. The most popular and sought-after offers are:

• franchise;
• McDonald's franchise;
• franchise;
• pharmacy franchise 36.6;
• franchise, etc.

After concluding a licensing agreement with the franchisor, the businessman acquires the right to conduct business under his trademark. At the same time, he is obliged to regularly transfer money to him for this. Such payments can be made:

• once a month;
• once a quarter;
• once a year.

Advice: Business entities should not confuse concepts such as royalty and lump-sum payment, since their amounts and purposes differ significantly from each other.

The royalty amount is determined individually, as its size may be affected by the following factors:

1. Brand fame.
2. Expected profit.
3. Business income.
4. Features of the franchise.
5. Personal agreements of the parties.

Advice: in some cases, the royalty amount is fixed, which is reflected in the relevant documents. Sometimes the parties agree that a certain percentage of the profits will be transferred as royalties.

As practice shows, in the territory Russian Federation The royalty rate ranges from 3% to 6% of gross income (sales for a certain reporting period). There are currently 3 options for calculating royalties:

Lump sum payment - what is it?

If a businessman decides to operate a franchise, he must enter into a commercial concession agreement with the franchisor. When acquiring the right to conduct business under a well-promoted trademark, he will have to pay a lump sum fee - a one-time payment. After making this entry fee, the businessman begins active interaction with the franchisor.

Advice: Business entities should remember that the lump-sum contribution is not the only payment that will have to be made to start working on a franchise. They will have to purchase equipment, pay for staff training, purchase goods, regularly pay rent and royalties.

The lump sum fee is paid in in full immediately after signing the contract. Some franchisors allow business entities to pay the entry fee in installments and develop individual schedules for them. Currently, Federal legislation does not regulate in any way the procedure and system for calculating lump-sum contributions. That is why franchisors independently determine the amount of entrance fees, based on business conditions and economic benefits.

Today on domestic market You can find franchises for which mandatory lump-sum fees are not established. In this way, well-known companies are trying to attract new business entities to their business line. After concluding agreements between franchisors and legal entities(including individual entrepreneurs) they have dealer relationships. For example, a franchisor produces products, and the company that bought his franchise sells it under a well-promoted brand.

This type of relationship is very beneficial for beginning entrepreneurs, since they do not need to make big investments to promote their business. starting investments. Currently, many clothing stores operate successfully under such conditions.

When forming a lump sum fee, franchisors take into account various factors:

1. If the franchisor is a well-known foreign company that allows business entities to develop business at international level, it can set a lump sum payment in US dollars or euros.
2. If the franchisor is interested in the active development of his network, he may require a symbolic payment from the entrepreneur as an entry fee.
3. If the franchisor seeks to take a leading position in the domestic market and squeeze out competitive companies, he may completely abandon lump-sum payments. In such cases, business entities undertake to regularly purchase goods from him, the cost of which may include a lump sum contribution.

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Every businessman who wants to enter the Russian market under a well-promoted brand can purchase a franchise that will allow him to use various technologies, standards and products for his own purposes. For the right to use someone else’s and well-recognized trademark, you will have to pay a lump-sum fee, as well as regularly pay royalties, the amount of which is determined on an individual basis. Working as a franchise commercial organizations And individual entrepreneurs get a lot of benefits. They are also protected from many mistakes that are usually made when exploring new business areas. The main task of any entrepreneur who decides to purchase a franchise is to find a well-known franchisor in the chosen niche and strictly comply with the recommendations received and the terms of the contract. In this case, he will be able to achieve his goals, form his own client base and receive gradually increasing income.