Royalties are the shortest clause of a franchise agreement and the most frequent cause of disputes. “Five percent of revenue” sounds unambiguous right up to the first month when a location had discounts, refunds and orders the client hasn't paid for yet. After that the partner and the head office each count their own way — and both are right in their own way. We explain what ERP.Knopka bases its royalty calculation on, so that there is nothing to argue about.
where royalty disputes come from
Almost all royalty disputes come down to one question: what number to calculate from. The agreement says “a percentage of revenue”, but in a service business revenue can be counted in at least three ways:
- the sum of orders created in the month — what got into the system at intake;
- the sum of closed orders — what has been handed over to the client;
- money that actually came in — cash, card, transfers, net of refunds.
In a calm month these numbers are close. In a turbulent one they diverge noticeably. An order was accepted on the 28th, and the client picked it up and paid for it on the 3rd of the next month. A client got a loyalty club discount. Shoes were returned for rework, and the money was partly refunded. The head office looks at turnover in the CRM, the partner at the money in the cash register, and each is sure the other is counting wrong.
A dispute is settled not by an agreement to “trust each other” but by one rule written into the system: which number royalties are calculated from and where that number comes from.
turnover and money are different numbers
In ERP.Knopka these quantities are kept apart from the start. Every operation arrives from the CRM as an event: order created, payment received, refund processed, technician's work completed. The ERP sorts them into two separate ledgers.
Turnover (accrued) — what the services provided over the period are worth. This is the basis for location profit: in the “Cash flow and P&L” report, profit on paper is calculated as turnover minus fixed expenses, pay, variable expenses and tax.
Money (received) — what actually came into the cash register. Turnover minus what clients have not paid yet (receivables) is exactly the money received for the period.
The ERP shows these two numbers side by side and reconciles them: profit on paper, adjusted for what is accrued but not yet paid, must match the money in hand. If the reconciliation doesn't add up, the error is visible immediately, not at the end of the quarter. More about the difference — in the article turnover is not cash: cash, turnover and receivables.
why we calculate from the money received
The royalty base in ERP.Knopka is the money actually received at the location's cash register in the month, after discounts and net of refunds. Not turnover and not the sum of created orders. There are three reasons.
The partner pays royalties out of money, not out of turnover. If an order for 8,000 ₽ (an illustrative amount) has been created but the client hasn't paid for it yet, the partner doesn't have this money. Demanding a percentage of it means lending to the network out of their own pocket.
Money isn't counted twice. An order can be reopened, its contents changed, closed again — in terms of turnover this produces retroactive corrections. A payment is a fact: the money came in once, and a refund against it also comes as a separate event.
Discounts are already accounted for. If the location gave a club discount, the client paid less — and royalties are calculated on what they paid. There is no need to argue separately about “whose” discount it is.
The flip side is fair too: money received this month for a previous order goes into this month's base. Over a year everything evens out, and month by month the base reflects the location's real cash flow.
types of terms: fixed, percentage, tiers, minimum
Royalty terms in the ERP are stored for each location separately — different partners have different agreements. These options are possible:
- a fixed amount per month — the payment doesn't depend on revenue. Convenient for small locations and the first months of work;
- a percentage of the base — the classic: so many percent of the money received;
- a percentage with tiers — the percentage depends on how much the location received in the month;
- a minimum amount — royalties no lower than a set amount, even if the month was weak.
If no terms have been entered for a location, royalties are not accrued at all — the ERP does not substitute a “default” percentage. On the location readiness screen the head office sees this as a gap to close: it is better to show “no terms” than to silently calculate by someone else's rules.
how tiers actually work
Tiers cause the most confusion, so let's go through an example. The numbers in the example are illustrative.
Suppose the agreement says: “5% when receiving up to 750,000 ₽ a month, 4.5% if more”. This can be read in two ways:
- as a tax scale: the first 750,000 ₽ at 5%, everything above at 4.5%;
- as a choice of rate: we determine which tier the month fell into and apply that tier's percentage to the whole amount.
In ERP.Knopka tiers work the second way: the selected tier's percentage is applied to the whole amount for the month. If the location received 800,000 ₽, it falls into the second tier, and royalties are 4.5% of 800,000 ₽, that is 36,000 ₽.
Why: this is how the SneakNFresh network understands tiers, and how partners usually read them — “reached a bigger turnover, pay a lower percentage”. One thing matters: choose the interpretation once and write it into the system. Then the question “why 36,000 and not 39,750” is answered by the calculation, not by correspondence.
The minimum works on top: the ERP calculates royalties by the terms and compares them with the minimum amount. If the calculated figure is lower, the minimum is billed, and this is explicitly marked — otherwise the royalty amount in a month with almost zero revenue would look like an error.
refunds, discounts and unpaid orders
Three situations where manual calculations break down.
A refund. The client was refunded — in the cash register this is a negative line, and it reduces the base of the month in which the refund was processed. Nothing has to be recalculated separately: the base is the sum of the money lines, and a refund is simply subtracted.
A discount. The discount is already inside the payment amount: the client paid less — the base is smaller. Royalties are not calculated “before the discount”.
An unpaid order. Until the client pays, there is no money in the base. The order is visible in turnover and in receivables — the location understands how much it is owed — but royalties on it will appear only in the month when the money arrives.
A separate story is migrating data from an old system. When a location is connected to the ERP, the history of its orders arrives marked “migration”. It shows the location's past but doesn't affect payouts to employees.
the location's month and the location's currency
A network whose locations are in different time zones and in several countries runs into two non-obvious things.
The month boundary. A payment at half past one at night on the 1st in Vladivostok is still the 31st in Moscow. If the month is counted by the server's clock, part of the money lands in the wrong month and royalties “drift”. In ERP.Knopka the day and the month are counted by the time zone of the location itself — each location has its own.
Currency. A location in Kyrgyzstan receives money in soms, in Kazakhstan in tenge, in Uzbekistan in sums. The royalty base is calculated in the location's currency, without converting each payment to rubles. For network-wide summary reports the ERP converts amounts at the Central Bank rate, but this is a separate layer of the report — it doesn't change the location's money.
royalties and the fee for services are two different payments
Often a franchise agreement has two payments side by side: royalties for using the brand and a fee for the head office's services — platform, marketing, support. If you mix them into one line, it becomes unclear what exactly the partner is paying for and what will change if the terms of one of them change.
In the ERP.Knopka calculation these are two different amounts for the month: royalties are calculated by the location's terms from the base, the fee for services is a separate fixed amount. They don't need to be separated out of one line after the fact.
what the partner and the head office see
A royalty dispute is almost always a dispute about what each side sees. That is why in the ERP both sides look at the same data:
- the partner sees the turnover, money and profit of their location for the month, and in the reconciliation — why profit on paper differs from the money in hand;
- the head office sees the same numbers for each location and for the network, each location's royalty terms and the locations whose terms haven't been entered yet;
- the data comes from the CRM, where administrators enter it at intake and at the cash register. Nobody types revenue in by hand a second time — so what is left to argue about is not the numbers but the terms of the agreement, which is what the conversation should be about.
what is still in progress
Honestly about what the ERP doesn't have yet:
- cost of services based on usage norms — the norms screen exists, automatic write-off of supplies for completed work is in progress. It doesn't matter for royalties, but it does for location profit;
- advances to technicians as an expense — an advance payout is marked, but doesn't yet become a separate expense line on the day it is issued;
- history of technician rates — a rate can be edited, but “from what date” and the full history of changes are in progress.
These items don't relate to the royalty calculation, but we list them so as not to create the impression that the ERP already does everything.
how to switch to this kind of calculation
If royalties in your network are currently calculated in a spreadsheet, the path is this:
- Agree on the base. Turnover or money received is a business decision. We recommend money, but the main thing is to write the choice down.
- Agree on the tiers. A tier's percentage on the whole amount or in parts — two different kinds of math. Put an example with numbers right into the agreement.
- Enter the terms for each location, including the minimum and the fee for services, if there are any.
- Connect the flow from the cash register. While data is entered by hand, the dispute will be about data, not about terms.
- Check the first month from both sides. The partner and the head office look at one report and reconcile it with the bank statement. A discrepancy in the first month is normal; a discrepancy in the second is a reason to look for an error in the data, not in trust.
ERP.Knopka works at the first locations of the SneakNFresh network, the others are being connected in waves. Across the network — 712,321 orders since 2021, 175,834 clients, 70+ locations in 6 countries (across the SneakNFresh network, including locations that keep records outside the CRM). How to package the business itself before calculating royalties — in the article how to turn a business into a franchise.
frequently asked questions
what does ERP.Knopka calculate royalties from — revenue or turnover?
From the money actually received at the location's register in the month: after discounts and net of refunds. Turnover — the value of the services provided — is used for location profit, but not for royalties.
what if a client paid in the next month?
The money goes into the base of the month in which it arrived. Meanwhile the order is visible in the previous month's turnover and receivables — the location understands how much it is owed.
how do percentage tiers work?
The selected tier's percentage is applied to the whole amount for the month, not in parts. For example, with the terms “5% up to 750,000 ₽, 4.5% above” and 800,000 ₽ received, royalties will be 4.5% of 800,000 ₽ (the numbers are illustrative).
what happens if royalty terms haven't been entered for a location?
Royalties won't be accrued, and the head office will see this on the location readiness screen. The ERP doesn't substitute a default percentage — each location's terms are set explicitly.
what currency are royalties calculated in for locations outside Russia?
In the location's currency: in soms, tenge, sums. For network-wide summary reports the amounts are converted at the Central Bank rate as a separate layer; the location's money doesn't change.
