Franchise royalties in Belarus: how to define the calculation base

When preparing an established business for franchising, choosing a royalty percentage is not enough. You also need to define the amount it applies to and which transactions affect the calculation. Otherwise, the brand owner and franchisee may interpret identical terms as requiring different payments. For a sustainable franchise network, a transparent formula matters more than an attractive rate in a sales presentation.

1. Choose a fee structure

In Belarus, franchising relationships are specifically governed by the Civil Code, which refers to a franchise agreement as a comprehensive business licence agreement. Article 910 provides for a package of licensed rights to be granted in return for a fee. This may take the form of fixed one-off or periodic payments, a share of revenue, or another method agreed by the parties. A percentage-based model is therefore a contractual option, not a mandatory rate set by the state.

For recurring payments, consider three structures:

• A fixed fee. The franchisee knows the amount payable in advance, but the payment does not automatically fall when sales decline.
• A percentage of an agreed calculation base. The fee varies with the value of the transactions included in the calculation.
• A combined formula. For example, a percentage subject to a minimum payment. Here, it is particularly important to explain whether the minimum is a floor or a separate amount payable on top of the percentage-based fee.

It is best to describe the initial franchise fee and recurring royalties separately. Also specify which additional services are charged for separately. The franchisee should understand whether a particular service incurs an extra charge or is already covered by the recurring fee.

Choose a structure that suits your business model: consider how seasonal sales are, how the workload of the support team varies and how predictable the franchisee’s cash inflows are. Do not copy a competitor’s formula without testing it against your own transactions.

2. Turn ‘revenue’ into an unambiguous calculation base

The phrase ‘royalties on turnover’ leaves too much room for disagreement. Before offering your first franchise, list the future outlet’s income streams and determine which relate to the franchised business.

For each type of sale, answer four questions:

1. Is the transaction included in the royalty base?
2. When is it recognised: on payment, delivery of the goods or provision of the service?
3. Which amounts reduce the base?
4. What documentation supports the calculation?

Agree separately on the treatment of VAT where it applies to the franchisee’s transactions. State whether the base includes this tax. Do not replace a contractual definition with a reference to ‘normal revenue’: franchisees’ tax status and accounting practices may differ.

If the franchisee runs several business activities, define the boundary of franchise sales. For example, does the base include a separate service provided on the same premises without using the licensed rights package? Settle this in advance rather than after receiving the first royalty calculation.

3. Work through discounts, refunds and intermediaries

Use actual transactions from your own business as test cases. Exceptions are often the best way to reveal where a formula lacks precision.

Discounts and loyalty rewards. Specify whether royalties are calculated on the actual selling price after discounts. For a loyalty scheme, establish how payments made with points and reimbursements received from the promotion organiser are treated. Identical reductions in a receipt total can have different economic implications.

Refunds. Set out how the base is adjusted if a customer receives a refund in the following calculation period. Specify the documents required for the adjustment and how any negative balance is carried forward. Otherwise, the franchisee may pay royalties on a sale that is subsequently reversed.

Sales through intermediaries. The value of a customer’s order is not the same as the amount a platform transfers after deducting its commission. State explicitly whether commission reduces the base. Address card processing fees and delivery charges in the same way.

Advance payments and gift vouchers. Choose the point at which these enter the calculation so that a single sale is not counted twice: first when payment is received and again when the voucher is redeemed. Agree separately with your accountant and lawyer on the treatment of unused balances.

4. Test the formula against completed periods

Before selling a franchise, calculate the proposed royalties using data from your own outlet for several completed periods. Include routine sales, seasonal downturns, refunds and promotions. This tests the payment mechanism; it is not a promise of future profitability for the franchisee.

Ask the person responsible for the business model and the accountant to calculate the payment independently using the same set of documents. If their results differ, refine the definitions. A good formula should not require its author to explain it verbally every month.

Prepare a short calculation sheet showing the period, starting amount, exclusions, adjustments relating to previous periods, final base, rate and payment due. Give a reason for each exclusion. This makes it easier to reconcile amounts owed without turning a royalty discussion into a dispute over the franchisee’s entire accounts.

5. Set out the rules for accrual and changes

The agreement should specify when royalties start accruing, the calculation period, the payment deadline and the rules for part-months. If a royalty holiday is offered, clarify whether payments for that period are waived or merely deferred. Describe separately what happens if the outlet closes temporarily.

Article 910-1 of the Civil Code requires franchise agreements to be in writing and registered with the patent authority, the National Centre of Intellectual Property. Failure to meet the registration requirement renders the agreement invalid. The start of royalty accrual and the payment schedule should therefore be aligned with the legal formalities for granting the rights.

Do not rely on a notice sent in correspondence to change the rate. Agree on the grounds for changes, the procedure and the date on which the new formula takes effect. When amending a registered agreement, take account of the requirements for registering amendments.

Practical takeaway: before selling your first franchise, prepare a definition of the royalty base, a list of exclusions and a sample calculation. If two people can use them to reach the same result without further explanation, the royalty mechanism is ready to be formalised in the legal documentation.