You're facing franchisees struggling with royalty fees. How will you negotiate to find a solution?

To negotiate with franchisees struggling with royalty fees, understand their challenges by reviewing their financials and discussing their difficulties openly. Approach the situation with empathy to find mutually beneficial solutions while maintaining franchise system integrity.

Every instance of a financially failing franchisee (zee) seeking royalty relief will fall under one or more of the following 3 categories. They are: (1) the zee joined a 'bad' franchise system; (2) the zee is operating in a 'bad' location or territory; and/or, (3) the zee is a bad operator. Notice two of these three categories relate to the franchisor's failings. Remember who approved the location or territory. It is not unusual for younger/smaller franchisors to NOT understand their business as well as they think they do. Remember that 75% of new franchise systems go out of business over the long term. Potential zees need to validate the "tested and proven" business model that the zor is offering. Finish reading more regarding category 3.

The first option that should be decided independently by both zor and zee is "in or out". Does the zee want to stay in the system if resolution is reached? Does the zor want the zee out? The next decision is transparency or confidentiality. Word travels at the speed of the internet among zees so expect everything to come out eventually. Deciding "in or out" will likely have a great affect on shaping a plan. If the relationship is irreparably broken then a split may benefit both parties. But, at what cost to each? The adage, "Only attorneys get rich in a lawsuit", exists for a reason. Will the process be collaborative or adversarial? These issues need to be settled before moving on to any operational/financial issues.

After assessing financial challenges, explore options like temporary fee reductions or payment plans to provide immediate relief. Evaluate how these adjustments will impact your business and the entire franchise network to ensure they are both fair and sustainable. From my perspective, balancing immediate relief with long-term sustainability is key. Temporary measures should address current issues without creating future complications. It’s important to implement changes thoughtfully, keeping in mind both the franchisee’s needs and the overall health of the franchise system. This approach maintains fairness and supports franchisee success while safeguarding the integrity of the brand.

If a struggling zee has joined a well-run system and location is not an issue then there is a shortcut. FTSS (an original)! FOLLOW! THE! SYSTEM! STUPID! FTSS! Do so with SMART (not an original) goals. Specific, Measurable, Attainable, Relevant, and Trackable goals.

When negotiating new royalty terms, emphasize that such concessions are likely permanent and difficult to reverse. Therefore, it’s crucial to base any relief on a reciprocal agreement, where franchisees commit to specific performance improvements or other contributions. This ensures fairness, protects both parties’ interests, and helps avoid future conflicts. Make sure the agreement is clearly documented with review clauses to allow for periodic reassessment.

A well-known franchise consultant ;-) says that every small business is run by the numbers, but only some owners realize it. You must have accurate and timely financial statements in order to make accurate and timely business decisions. Failing to plan to produce accurate and timely financial statements is planning to fail! Review full financial statements not less than monthly. Review KPI reports not less than weekly.