What is a royalty? Royalty types. royalty agreement. Accounting and taxation of royalties What is the difference between royalties and royalties

Franchising is one of the most popular and profitable forms of organization modern business. Its underlying tools, franchise and royalty, are the source permanent income for the owner. With the right approach to business, the desire to earn millions on one brand name becomes a reality.

The term royalty: what does it mean?

What is a royalty? This term comes from the English word "royalty" (royal privileges) and means periodic payments for the right to use the trademark name, logo, and in more broad sense- the subject of the license agreement ( computer programs, inventions, phonograms, trade secrets, etc.). It can also mean royalties, rent for the right to develop natural resources or use by the entrepreneur of the land, its subsoil.

An exception

The concept does not apply to such objects of intellectual property as:

information bases;
programs of broadcasting organizations;
marks for goods and services that are considered to be well known or have international registration;
invention (not the method of its creation, but the result);
layout of integrated circuits;
breeds of animals;
plant varieties.

Payout rate calculation

The calculation of the payout rate may vary by year of the license agreement or every month depending on the volume of production, sales - a sliding rate. The higher the level of sales or production, the lower the royalty. This encourages franchisees to successfully create and sell products. Often a license agreement is not signed without a special clause on the payment of the minimum amount of remuneration, which must be transferred by the licensee in any case.

The percentage of royalties depends on the number of sales for a certain period of time or is determined per unit of output. As a rule, it ranges from 1-12%, the most commonly used range is 2-6%. But some industries use an empirical scale of average royalties (also called the market price of a license). It should be taken into account that for different countries The world's average royalty price is very different. For example, for pharmaceutical industry USA it is 3-10%, France - 4-5%, Russia - 10-15%.

License agreement: royalties. Franchise as a tool for creating a new business

To understand the place of royalty in economic relations, it is important to understand the meaning of some concepts. The development of the modern business sphere largely depends on franchising trends. That's what they call entrepreneurial activity, which consists in the transfer to a new business partner of the rights to use the trademark name, the sale of brand products - a franchise. Both parties enter into a franchise agreement, where they fix the purpose of the activity, rights and obligations, and the amount of investment.

Each franchisor (trademark owner) offers its own format of cooperation. But in any case, he must give the partner the right to use his brand, contribute to the growth of his business, and he, in turn, is obliged to invest. As a rule, this is a lump sum and royalties. Although in some cases, the franchisee pays separately for the cost of commercial equipment, rent of premises, expenses for advertising media without the support of the franchisor as a start-up investment.

Royalty is, in fact, the ultimate goal of the franchise. If it provides for the creation of cooperation, then regular payments for the right to use a successful brand to develop your business are his ultimate goal which gives a profit to the franchisor.

At the time of signing the contract, the franchisee must carefully study all its clauses and pay Special attention the amount and frequency of royalty payments. The document must clearly indicate the subject of the agreement, the duration of cooperation, the territory where business activities will be carried out.

The place of franchising in the world of business

Many will have a question: “Why has franchising become so popular?”. The answer is simple: "Because it is beneficial for both parties." The owner of a well-known chain of stores, a brand, a trademark has a thriving business. What else can he earn, besides expanding the network of his outlets, enterprises (which requires significant capital investment and loss of time)? He can sell the right to use his brand name to a person who wants to create his own successful business. That is to give him a franchise. And the entrepreneur, in turn, will be able to sell, for example, things of a well-known brand without spending on advertising, he will have supplier contacts, support in work and purchases.

The answer to the question "what are royalties?" will help the novice franchisee to correctly analyze the risk-benefit ratio.

Rights and obligations of partners

The franchisor undertakes to give the right to use its trademark, sell products, promises to conduct staff training, provide promotional materials assist in the design of the premises. In return, the franchisee contributes a certain amount of money as an investment in starting a business or a one-time lump-sum fee (fee for joining the trading network). What is a royalty? These are periodic payments from sales that are already made in the process of work. Their size must be fixed in the contract.

Royalty classification

Sometimes they use an average royalty rate, focusing on the global indicator of a fixed value of payments for a given business area. The franchise agreement can even approve zero royalties or a period during which nothing needs to be paid (in the case when the return on investment is long-term).

Different types of royalties allow you to effectively regulate the financial relationship between the franchisor and the partner, guaranteeing the owner a stable income.

Taxes and Recurring Franchise Payments

Many entrepreneurs are concerned about the taxation of royalties. Taxes can be counted in different amounts and regulated by conceptually different codes. It all depends on the legislative policy of the country. In most cases, the provisions of laws designed to regulate the taxation of such payments are based on distrust of the taxpayer.

But not a single edit in their articles will be able to completely neutralize the optimization schemes for royalty payments. The state is always interested in replenishing tax revenues in the context of franchising operations and, in particular, royalty payments. And one of the most popular ways to minimize costs for an entrepreneur is to optimize income tax through periodic franchise payments. Income from the use of intellectual property is taxed at 20% (Article 309 of the Tax Code of the Russian Federation). The amount must be transferred by the tax agent to the federal budget no later than the day following the day the income is paid.

A franchise agreement gives the franchisee the right to use copyright in an intellectual property object in their own interests. What is a royalty? These are regular periodic payments for this service. Knowing the importance and effectiveness of franchising tools will greatly increase the chances of creating a successful business.

Entrepreneurs who want to work on a franchise inevitably face the concepts of lump sum and royalties - what is it in simple terms we explain in this article. You will learn what these payments are for, what they are made up of, and what options exist on the market.

Franchising is a popular way to start a small business by purchasing the right to use a famous brand. When buying a franchise, businessmen inevitably face two types of mandatory payments: one-time and regular.

Interestingly, in Russian legislation both concepts are not fixed, which does not prevent them from working in practice.

Lump sum and royalties are the types of payments that the franchisee makes(buyer of brand rights), for:

the opportunity to work under a well-known name;
the opportunity to adopt entrepreneurial experience;
assistance in the purchase of equipment, selection and training of employees;
promotion services from the main company;
other services and any assistance in doing business.

What is a lump sum

At the very beginning of cooperation, the buyer pays the franchisor a certain amount, one-time initial payment for the right to use the brand and count on the joint development of the trading network. Such a contribution is called a "lump sum", its name comes from the French phrase "thick piece".

The size of the lump-sum contribution varies from 15 thousand to several million rubles. The average price is 300 thousand rubles. Usually the amount of a one-time payment is clearly fixed a certain amount(or within certain limits), although some companies set the amount of the first installment personally for each entrepreneur. The cost, as a rule, depends on the direction in the business, the popularity of the copyright holder, manufacturability and his contribution to the opening of a new institution. Usually this fee is identified with the cost of the franchise.

Franchising is a popular way to start a small business

How is the lump sum amount calculated?

The amount of the contribution is not determined by chance. It is calculated on the basis of the costs incurred by the franchisor for the training of the franchisee and the opening of a new network establishment. The higher the cost, the higher the cost of the franchise. Costs typically include:

training for entrepreneurs and employees;
preparation and printing guidelines, strategies, rules and other documents;
branded clothing for employees, packaging with logos, etc.

You should not equate a lump-sum payment with all investments in a business. This one-time payment to the copyright holder does not include the cost of equipment, rental of premises, repairs, purchases of the first batches of goods. This is a price to pay for the opportunity to open an institution with an already proven brand, to adopt professional skills and learn some parts trade secret.

By the way, some firms sell franchises without a lump-sum fee at all. As a rule, these are companies that are interested in opening as many outlets as possible, for example, clothing and footwear stores.

Monthly franchise fee

The situation with monthly payments is somewhat more complicated. In franchising, they received the name "royalties", which also comes from French. Literally, it means "royal", which translates as "share of the main" from profits or property.

What is a "royalty" in a franchise? This is a monthly payment to the franchisor for the right to use the brand and make a profit from it, as well as other services. There are several approaches to calculating this type of payment.

Percentage of turnover. Partners indicate in the contract the percentage that the franchisee will pay monthly from the total sales volume. As a rule, the amount of payment is assigned within the limits of 2-5%. This is the most common type of royalty determination.
Fixed amount. It is also a fairly popular type of royalty, when, regardless of profit, the franchisee pays the same amount every month.
Percentage of margin(i.e. the difference between price and cost). It is rare, as it is not profitable for most franchisors and is more time-consuming to calculate.

Royalty rates for a trademark are determined by the franchisor at the stage of franchise development through calculations, analytics and forecasting the most profitable option. In rare cases, companies select personal conditions for their partners and use several methods of calculating royalties.

Royalty payments sometimes include payment Supplies, technical support, recommendations and retraining. The approach to calculating monthly fees also differs by industry. Quite a few companies operate royalty-free- individual beauty salons, optics stores, marketing agencies and other companies.

When buying a franchise, businessmen inevitably face two types of mandatory payments.

What do franchisors earn without royalties and lump-sum fees

Often on the franchise search exchanges you can see offers without an entrance fee and monthly payments (or with a symbolic amount of 1 ruble). What is the benefit of these companies? Obviously, no one will work at a loss, that is, such firms still make money on something.

As a rule, these are companies (manufacturers or intermediaries of manufacturers) that oblige the franchisee to purchase consignments of goods from them according to an agreed schedule. They are interested in the fastest possible sale of goods through the franchise network, so they do not burden partners with additional payments. Although, strictly speaking, most often the royalty is simply included in the purchase price.

Conclusion

Franchising in Russia is actively developing. An entrepreneur who wants to start a business in this way must have a good command of the specific conceptual apparatus and determine which approach to calculating royalties and what size of the lump-sum contribution will be more profitable in his situation.

Starting your own business is actually not that easy. Not everyone has a large start-up capital, and then novice businessmen turn to franchises. And everything would be fine, but in this case you need to understand something. The basics of franchising begin with such a term as "royalties". What is a Franchise Royalty? It is to this issue that our article is devoted. Many people confuse the definition of royalty with a lump-sum contribution, but these are two different concepts. In addition, there are several types of royalties. More on all this below.

Concept definition

The term came to our language from English. In turn, the English royalty appeared in the Middle Ages. Literal translation: royal, state. V modern world royalties are understood as fixed payments on a regular basis. What is the payment for?

For any intellectual property: musical work, company logo, plot, etc. In franchising, a businessman rents a brand and pays a fee for its use.

What does it look like in reality? You open your own franchise facility. For example, you cooperate with KFS. In exchange for your funds, you get access to the institution's recipe, slogan, corporate design and other attributes. In return, you pay a one-time lump-sum fee, and you are assigned royalties. Under it, you undertake to pay the sums of money on time. Royalty is assigned as a percentage of income or as a fixed payment that does not depend on profit.

What does the royalty go to?

Many do not understand the essence of royalties and what they pay for. So: royalties are fees for renting a brand. The entrepreneur rents it, not buys it. It is very important to understand the difference, because in the case of a lease, you have the right to use the brand and its concept, but you cannot make changes. Of course, you can try to talk to the franchisor and make some adjustments specifically to the work of your establishment or store. But not the fact that they will agree with you. Therefore, you must have a strong reason.
Judging by the reviews of the franchisee, in this case, the size of the brand plays a role. Large trade marks go their own way and do not like it when the franchisor interferes with his personal opinion in the well-established work. But small businesses are good at contact. The amount of royalties also includes the cost of advertising TM and payment promotional items. However, this is all on a global scale. But advertising specifically for your point can lie on the shoulders of the franchisee. This point is worth mentioning in advance.

Types of royalty

The royalty amount is set by the franchise owner. Some franchisors approach each potential partner individually. In other cases, the amount of monthly payments for all is the same. You can agree to the terms or look for another franchise.
Sometimes it turns out to agree on your own amount, but this only applies to small businesses. Big companies work according to a well-thought-out scheme and rarely make concessions. Moreover: you may also have to prove that you are a worthy candidate for the acquisition.

What are the types of payments:

Fixed payment. The amount of the contribution is negotiated immediately and does not change. It doesn't matter what your franchise income is. If things go badly, you will have to cover the payment from own pocket. If, on the contrary, the income is rather big, then no one will force you to pay more;
Percentage of revenue or turnover. In this case, the amount of payments depends on how successful your business is. On the one hand, you do not have to look for additional funds with low revenue. But in the case of large incomes, you will have to deduct a tidy sum;
Percentage of sales. A rough explanation - that they sold for that and paid. It is profitable for you to sell the goods, but at the same time, you pay a commission to the franchisor for this;
Combined payment. In this case, an individual royalty rate applies. You can work on a fixed payment, but a percentage of the sales volume will be set for a specific product. Or vice versa. It already depends on the procedure established in the contract.

There are also royalty-free franchises. In most cases, this applies to commodity franchises. Those. clothing stores, gifts and others. The more you buy from them goods for sale, the better for the company itself. Therefore, in such cases, a lump-sum contribution is sufficient. But it often happens that the owners still get their own - simply by setting margins on the goods.

The most common option is a percentage of revenue. The franchisor simply sets a specific percentage. Those companies that have been working with franchises for a long time usually give a delay in payments. Those. payment of contributions begins from the 3rd month of franchise ownership, or even after 6 months. This time is given for the entrepreneur to be able to get on his feet. Initial contributions will cost a pretty penny and it is important to go at least to zero during the grace period.

The duration of the period depends on the conditions of the company. Typically, the company gives independent forecasts for payback. But be careful: the numbers are based on averages. In one region, the business will pay for itself in a year, and in another in two. Or maybe not pay for itself at all and get up.

Therefore, when dealing with franchisors, try to listen to them, but also conduct independent market analyzes.

Not everyone can draw huge sums of lump-sum contributions. Therefore, franchisors go to a meeting and in some cases simply scatter the amount of the lump-sum fee in royalties. Accordingly, when the contribution is paid, the amount of royalties will decrease. But in this option, the amount of royalties can even reach 50% of revenue. The franchisor can also set a minimum size. Suppose you have a revenue royalty of 5%, but no less than 1,000 euros. But in one month things went badly and the percentage on the amount turned out to be very small - 500 euros. You still have to pay a thousand, as there is a minimum amount of royalties.

Royalties: for or against

The old truth that every coin has two sides also works in our case. Royalty has both pros and cons. For the franchisor, of course, this is a plus. He receives a monthly profit from the entrepreneur simply for renting the brand. It is worth noting that fixed contributions leave more flexibility for franchisees. But the percentage of royalties allows the company to monitor the affairs of its partner in more detail.

But not everyone likes to part with their hard-earned money, which is a big minus. If you are not ready for this kind of cooperation, then you should turn to independent swimming and open your own business. But if you look at the issue from the other side, then the floating royalty creates a lot of interest in your development. The more deductions - the greater the profit of the owner. So you can count on his support, since your success is his success.

Sometimes royalty just doesn't pay off. You monthly deduct a piece of income, and in return you get nothing but the right to use the brand. Such conditions are not very favorable. Moreover, it is difficult for a novice businessman to figure out whether the franchise is worth the money. In this case, there is only one advice: read the contract carefully. It would be nice to enlist the support of your own lawyers and show the contract to an outside specialist.
Pay special attention to whether the franchisor reserves the right to increase the payment rate and for which penalties are provided.
Read reviews, find real owners of a particular franchise. This will save you from future disappointments. About average it is 5-10%. This is the standard amount of royalties, but if the percentage is higher, then you should think about the greed of the owner, and carefully check what you will pay such an amount for.
But don't be in a rush to purchase royalty-free franchises. This option also has pitfalls. New companies operate without royalty. This applies to small businesses or companies that have just entered the franchise market. In this case, you will also work from scratch.

The owner of the brand will not have a clear policy and you, it turns out, will be a kind of experiment. Trial and error will be applied to your case.

tax side

Royalties are taxable. There are two types: VAT and personal income tax. VAT falls on the shoulders of the franchisor. But if you cooperate with foreign company without registration in the Russian Federation, then the fee goes to the franchisee with subsequent collection from the owner. Personal income tax is paid by the franchisee, but collection from the owner is also provided. Size 20%. If cooperation takes place with a foreign owner registered in the Russian Federation, then they can be exempt from tax, but this requires a special agreement.

What threatens for non-payment

If the franchisee misses payments, then the result is the same - termination of the contract. When things do not go uphill, the owner can go to a meeting and reschedule the payment, or send a manager to help fix things. But this issue must be discussed before the conclusion of the contract. And don't wait until the very end. If you have a problem that you feel you cannot handle, it is best to notify the franchisor in advance. Provided that there were no problems with payments, the owner can extend the contract. However, not only this factor affects the extension, although it also means a lot.

Conclusion

Own business is not for everyone, so many turn to franchises. But before that, you need to carefully study the conditions of the acquisition. Royalty is one of the main points of waste. Therefore, it is important to understand what it is and why it is needed. After the contract has been concluded, nothing can be done if you missed something. In this case, there is only one way out - termination of the contract.

Trade is becoming an increasingly popular form of running your own business.

Production requires a lot of conditions and qualified personnel, and opening your own store requires an order of magnitude less requirements.

The basis of success is the ability to work in your niche and compete in the market.

How a franchise works

To get started, you are offered a product, promotional materials and booklets, as well as instructions for working with customers in the field of sales. That is, it remains only to sell the proposed product on the market.

The only deposit required is the purchase of the product. for the sale of the first batch of goods. There is no need for additional expenses in this business, as there is no need for an office, equipment and additional staff.

Franchise from the manufacturer

The absence of a lump-sum contribution, that is, distribution work. In this option, a person concludes with a manufacturer of goods contract for the representation of its products in a certain region.

The entrepreneur receives discounts on products, as well as retail store equipment brand. In this case, the manufacturer expands the sales market, and the businessman gets the opportunity to start working with someone else's brand products at minimal cost.

Conditional Franchise

This type involves starting a business without a high lump-sum fee and additional investments.

Here businessman gets training in the company, and then he is provided with knowledge on business processes.

At the beginning of a person's work mentor provided who advises on emerging issues.

All activities are carried out by the entrepreneur himself. He also solves the question of the amount start-up capital for your business.

Royalty exemption method

The royalty exemption method is used to evaluate patents and various licenses.

Usually, the owner gives other people the opportunity to use the license for a material reward (royalty), which usually varies from the proceeds for use and ranges from 7% .

If the patent owner sells a license for the first time, then the amount of royalties set by the appraiser.

The appraiser, based on market analysis and demand, conducts research and determines the percentage rate of deductions.

Video: Collecting royalties from franchisees

It explains what points should be specified in the contract in order to freely receive a debt from the defaulter, how in practice there is a trial on a claim against the debtor.

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