How does Management Recruiters present revenue from franchised locations, and why?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
Our primary source of revenue comes from royalty fees based on the operation of our franchised offices. Royalty fees from our HireQuest Direct business model are based on a percentage of sales for services our franchisees provide to customers, which ranges from 6.0% to 8.0%. Royalty fees from our HireQuest business line, including HireQuest franchisees, DriverQuest franchisees, the Northbound franchisee, the HireQuest Health franchisees, and Snelling and LINK franchisees who executed new franchise agreements upon closing, are 4.5% of the payroll we fund plus 18.0% of the gross margin for the territory. The MRI franchisees with a lower royalty scale generally pay a flat annual fee plus a percentage-based royalty. For contract staffing, MRI franchisees pay a royalty that ranges from 20% to 25% of payroll, depending on sales volume. Some customers that utilize qualified independent contractors cause the franchisee to pay a royalty that ranges from 4% to 10% of contractor payments, depending on sales volume. Royalty fees from the Snelling and SearchPath franchise agreements assumed and not renegotiated at closing range from 5.0% to 8.0% of sales for services our franchisees provide to customers. Our franchisees are responsible for taking customer orders, providing customers with services, establishing the prices charged for services, and controlling other aspects related to providing service to customers prior to the service being transferred to the customer, such as determining which temporary employees to dispatch to the customer and establishing pay rates for the temporary employees. Accordingly, we present revenue from franchised locations on a net basis as agent as opposed to a gross basis as principal.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 65–66)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, the company presents revenue from franchised locations on a net basis, acting as an agent rather than a principal. This approach is due to the franchisees' role in managing key aspects of service delivery. Franchisees are responsible for taking customer orders, providing services, setting prices, and controlling other service-related factors, such as determining which temporary employees to dispatch and setting their pay rates.
Management Recruiters' revenue primarily comes from royalty fees based on the operation of franchised offices. The royalty fees vary depending on the business model. For the HireQuest Direct model, the fees range from 6.0% to 8.0% of sales. For the HireQuest business line, which includes HireQuest, DriverQuest, Northbound, HireQuest Health, and certain Snelling and LINK franchisees, the royalty is 4.5% of the payroll funded plus 18.0% of the gross margin for the territory. MRI franchisees with a lower royalty scale typically pay a flat annual fee plus a percentage-based royalty. For contract staffing, MRI franchisees pay royalties ranging from 20% to 25% of payroll, depending on sales volume. For customers using qualified independent contractors, the royalty ranges from 4% to 10% of contractor payments, depending on sales volume. For Snelling and SearchPath franchise agreements assumed and not renegotiated at closing, the royalty fees range from 5.0% to 8.0% of sales.
This net revenue presentation reflects that Management Recruiters views the franchisees as primarily responsible for the direct customer relationship and service delivery. This is different from company-owned locations, where Management Recruiters controls the service conditions and presents revenue on a gross basis as the principal. Understanding this distinction is crucial for prospective franchisees as it clarifies how revenue is recognized and reported, impacting the financial performance metrics presented in the FDD.