3 Reasons To Include Tech Fees in Your FDD
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3 Reasons To Include Tech Fees in Your FDD

3 Reasons To Include Tech Fees in Your FDD

Martech, fintech, and now proptech. There is no end to the uses franchisors are finding for the overflow of data now available. This article from FranConnect examines how brands are using and managing technology fees – and strongly urges franchisors to include such fees in their FDD. It’s all about competitive advantage.

Technology is constantly evolving, and businesses must be prepared to adapt to stay competitive. Franchisors that don’t update their systems and technology may find themselves struggling in the years to come. One way to help ensure that your franchise system is keeping up with the latest trends is by implementing a technology fee in your FDD. We discuss the benefits of doing so and how it can help your brand in the long run.

A look at tech fees

In 2019 we undertook a thought-provoking examination of the use of technology fees in almost 2,200 franchise disclosure documents (FDDs) over a 3-year period.

The need for a technology fee is not an obsolete practice. In our current environment, where many companies are going digital, it’s more important than ever for your company to adapt and keep up with changes in the marketplace. This will enable you to offer services properly, while ensuring profitability that will allow you to continue being competitive against other businesses that also invest into new technologies but that aren’t charging fees like yours!

To provide a healthy and sustainable business, most franchise systems need the ability to shift the costs of new or improved technology. This is an equitable allocation as it benefits the entrepreneurs who invest in your company by delivering more efficient tools for work productivity, while also ensuring they can cover these expenses through increased earnings.

The fee structure for a technology license can vary dramatically between franchisors, but there are some key elements that every system should have. First and foremost is the ability to honor your commitment as set forth in an FDD filed with state regulators. This requires adequate disclosure of all fees charged under Item 6, which include not only licensing costs or usage rates at different stages during operation, but also considers how these numbers may change based on certain factors such as market value fluctuations, etc. 

Three other things worth mentioning: 

1) This fee should not be used as a way to make additional profit for the franchisor, but rather should cover only the necessary expenses associated with keeping the business up and running.

2) The tech fee should also be included in your initial investment amount so potential franchisees are aware of all costs up front. No surprises.

3) By having a technology fee in place, you can ensure that your franchise system is always up to date with the latest trends and technologies. This will benefit both your franchisees and your brand in the long run.

3 reasons to add a tech fee to your FDD

1) The technology fee is a great way to differentiate your franchise system from other systems. The tools you choose can increase effectiveness and efficiency in operations, marketing, sales management, and communications with clients or prospects – all while providing an excellent experience!

2) The technology fee helps spread the costs of new technologies. Often, franchisors bear a large share of these expenses, while franchisees are left to foot more than their fair share when it comes time to implement any given innovation or upgrade within your system. But not any more! With this innovative strategy – which splits investment among all participating entities to make sure everyone benefits equally from its implementation – you now can afford improvements such as high-speed Internet access points throughout each location (which will help drive customer satisfaction ratings), and employ computerized systems that ensure accurate inventory management without human intervention ever again.

3) Last, the technology fee can be drafted generally so it will adapt to market changes without requiring franchise agreement modifications. For example, if a franchisor did not contemplate having a royalty manager application at the time a franchisee joined, but now wants to implement one across the franchise system, funds from this particular line item in the FDD are available for implementation purposes. The best part is that there is no need to amend or change anything else about your business model or contract.

To provide a healthy and sustainable business, technology must always be advancing, and franchise systems must be willing and able to adapt. With a technology fee, you can help protect your brand while also benefiting your franchisees. 

For more information on how to include a technology fee or other fees into your FDD, or if you have questions about how this might benefit your system, contact FranConnect through our website or by call us at 844-344-4303.

Published: August 18th, 2022

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