Franchisees in the 7-Eleven network will be offered a new business model that equates profit share percentage to gross profit.
In an attempt to redress concerns that the existing 57-43 percent profit sharing model was unsustainable for franchisees, the troubled convenience store has developed a three-tier model the interim CEO Bob Baily believes “meets the test of both fairness and mutual benefit”.
How does the new 7-Eleven model work?
Franchisees that make an annual gross profit under $500,000 will be asked to share their profits on an equal basis with the franchisor.
Any franchisee bringing in a gross profit above $500,000 but below $1m will be keeping 47 percent of their profits, the franchisor receiving 53 percent.
For stores that earn more than $1m, the profit share equation will be 56/44 percent in favour of the franchisor.
The unusual franchise structure at 7-Eleven has seen the franchisor pay for rent and utilities, the franchisee foot the bill for its payroll, store supplies, cleaning and phone expenses. New to the agreement is the franchisor funding of bank and credit card fees.
Franchisees keen to adopt the new agreement will be required to be compliant in payroll and record-keeping.
According to SmartCompany it is expected that franchisees will be able to discuss the new model with area managers from next week.
However, the website reports that one franchisee has already responded to the new model with claims that the agreement does not go far enough to provide franchisees with a viable business.
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- Read more: How does franchising work? How can franchisees make money?; why pay royalties.