TECH FEES BY THE NUMBERS: A data-driven look at funding technology to support franchise operations.

Author:Gerson, Keith
 
FREE EXCERPT

In the first of a series based on an in-depth operational analysis of the franchising industry, the FranConnect "Franchise Operations Index," we'd like to take a closer look at the use of franchise technology fees found in U.S. Franchise Disclosure Documents (FDD).

FranConnect undertook a comprehensive recent review of 2,191 FDDs over a three-year period to fully understand the types of fees franchisors are using, relating to a range of categories including:

* Total training hours

* Classroom training (vs. on the job)

* Initial franchise fees

* Technology fees

* Royalties

* Advertising fees

* Required local marketing

VALUE OF TECH FEES

Technology fees have become the standard for ensuring a franchising organization can keep up with a rapidly evolving competitive environment. Technology fees are franchisee costs paid to a franchisor to add, update or upgrade required business tools and systems. "The goal of the tech fee is as a means to help franchisees run their business more efficiently and effectively," said Kevin Wilson, CEO of Buzz Franchise Brands.

A decision to add or upgrade your technology can be a difficult test, if voluntary, between a franchisor and franchisees. Will the technology add value to the business? Will it bring in additional revenue? Will the franchisor share the costs?

"How a franchisor addresses technology fees is a great example of their strategic leadership for its brand and franchise network, and is a real difference-maker in the overall performance of the franchise system," said Brian Schnell, a franchise attorney with international law firm Faegre Baker Daniels.

In a recent franchise study conducted by FranConnect, 50 percent of franchisees claimed "technology tools" were among the top values that a franchisor provides. Franchises are recognizing there may be limits to their expansion unless they keep pace with technology needs.

Technology is a true differentiator in a competitive retail environment. A franchise can rely on tech solutions to eliminate staffing challenges in a labor-intensive business, to expand their business, and save time and money. Not making the tech investment may limit revenue growth, profit margin and market share in their territory.

Buzz Franchise Brands' Wilson explained that his organization collects approximately $350 per month per franchise and allocates it for technologies including their VOIP phone system, their franchisee websites, FranConnect (for their communications intranet...

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