Royalty & Fee Revenue Model
This use case explains how to model royalties, marketing levies and franchise fees for franchisors in Model Reef.
You will:
Link franchisee sales to royalty and fee revenue for the franchisor.
Represent different royalty structures and marketing levy arrangements.
Model minimums, fixed fees and tiered royalty rates where applicable.
Connect royalty revenue to network P&L, Cashflow and valuation.
Model Reef is not a billing or contract enforcement system. It models the economics of royalties and fees at planning level based on defined structures and assumptions.
When to use this pattern
Use this pattern when:
You are a franchisor with royalty based income.
You charge marketing levies or service fees on franchisee sales.
You want to understand network level revenue from royalties and fees.
You need to simulate changes in commercial terms across the network.
It often sits on top of:
Franchisee Unit P&L Model
Territory Rollout Planning
Network Level Consolidated Reporting
Architecture overview
Define the relationship between franchisee and franchisor models
You can represent franchisee activity and franchisor royalties in either:
A single Model Reef model where franchisee branches and franchisor branches coexist, or
Separate models, where franchisee output is imported or approximated for the franchisor model.
In either case, identify the sales base for each unit or group of units that will drive royalties and fees.
Drivers for royalty bases and percentages
In the franchisor model, create drivers for:
Eligible Sales for Royalties per unit or per region.
Royalty Percentage for each franchise agreement type.
Tier thresholds and rates where tiered structures are used.
You can reference:
Revenue variables from franchisee branches, or
Imported sales data where you maintain franchisee models externally.
Define a Royalty Revenue variable such as:
Revenue - Royalty Income - Region North.
Example formulas:
Royalty Revenue = Eligible Sales × Royalty Percentage.
For tiered structures, approximate by using weighted average percentages or piecewise applications via separate variables per tier if you want more precision.
Model marketing levies and pooled funds
If you run network marketing funds, create additional Revenue variables such as:
Revenue - Marketing Levy Income - Network.
Define drivers for:
Levy Percentage on eligible sales.
Any minimum or cap per unit where applied.
Compute:
Marketing Levy Income = Eligible Sales × Levy Percentage.
On the cost side, create Opex variables for spend from the marketing fund, either as:
Direct marketing campaign spend by channel, or
Allocations to regions or units if you want to track benefits by geography.
This lets you see whether levies and spend are approximately balanced or intentionally in surplus or deficit.
Include fixed fees and other recurring income
Many networks also charge:
Initial franchise fees.
Ongoing fixed service or licence fees.
Technology or system access fees.
Training fees.
Create Revenue variables for each type, for example:
Revenue - Initial Franchise Fees.
Revenue - Ongoing Service Fees.
Revenue - Technology Licence Fees.
Link them to drivers such as:
Number of new units opened per period.
Fee per unit per period.
Upgrades or re fit fees every certain number of years.
These will be particularly important in Territory Rollout Planning.
Model cash timing and compliance behaviour
Set delay and timing rules for royalty and fee cashflows, for example:
Royalties remitted monthly in arrears.
Levies remitted with the same cadence as royalty payments.
Occasional late payment behaviour approximated via additional delays.
This will create:
Receivables for unpaid royalties and fees.
Cash inflows when payments are made.
Cashflow sensitivity to payment behaviour.
You can use scenarios to approximate stress cases where some franchisees delay or default on payments.
Use scenarios for commercial term and pricing changes
Clone the base model into scenario models to test:
Royalty percentage increases or holiday periods.
New or adjusted marketing levies.
Introduction of new service fee structures.
Differentiated terms for new franchisees compared to existing ones.
Incentives for high performance units.
In each scenario, adjust:
Royalty and levy percentages.
Fixed fee levels and timing.
Eligibility rules for different fee types.
Payment timing and compliance assumptions.
Compare scenarios using:
Franchisor revenue from royalties and fees.
Network and unit level profitability.
Cashflow and valuation metrics.
Incentive alignment between franchisor and franchisees.
Check your work
Royalty and fee structures match actual franchise agreements.
Sales bases used for calculations reconcile with franchisee P&Ls.
Timing of payments aligns with historical remittance patterns.
Scenario changes are understandable to commercial and legal teams.
Troubleshooting
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