The Management Service Fee: Clarity Beats the Percentage

A conversation with Liam Wilson, director of Elevate Accountancy. Interview by Tony Johnston, FranchiseAir.

Liam Wilson is a chartered certified accountant who has worked with franchise businesses since the start of his career, fourteen years ago. He founded Elevate Accountancy in Wrexham in 2023, after time at a long-standing franchise accountancy practice, and franchising is the firm’s largest specialism. Elevate acts for franchisors and for franchisees, often within the same network, which is the vantage point for everything he says here.

We asked him about one fee and nothing else: the management service fee. What it is for, the models in use, how a franchisor should arrive at the rate, what “a percentage of turnover” has to define before it means anything, how to collect it without the relationship depending on trust alone, and what to do when the network says it is too high. One word comes back in nearly every answer. Clarity.

Fourteen years in franchise accounting

Tony: Hello, I’m Tony Johnston of franchiseair.com. We do software, franchise software, and today I am interviewing Liam Wilson of Elevate Accountancy. So, hello Liam.

Liam: Thanks for having me, Tony. Yes, I’m Liam Wilson from Elevate Accountancy. We work extensively in the franchise sector, supporting both franchisees and franchisors, which gives us quite a useful view of both sides of that relationship and how to manage it.

Tony: And how did you start Elevate, and where are you based?

Liam: We started just over three and a half years ago, based in Wrexham, so now the Hollywood of the UK. Sunny Wales.

Tony: Sunny Wales.

Liam: Yes, North Wales. One of our niches was franchising, because I’ve worked with franchise businesses since the start of my accountancy career, fourteen years ago, working with all different brands, from the big ones to little brands. So it’s been great.

Tony: Excellent. And what is your website, for those who might want to contact you to enquire about your services?

Liam: The website is www.elevateaccountancy.co.uk.

What the fee is for

Tony: Excellent. I’m sure you’d welcome a conversation with them. But today, what we’re going to do is talk about — it sounds dry, but I think it could be quite an interesting conversation — we’re going to talk about management service fees. All about them: how you should create the numbers, how you should manage them once they’re going, how you should manage late payers, all that kind of stuff. So, firstly, I thought the best way to start is with the management service fee itself. What is it, and what are the basic options, Liam?

Liam: Some have different terminology, but a management service fee, MSF for short, is a fee which is charged to franchisees by the franchisor to sustain the support level that franchisees need from the franchisor. And the message I always give is that it should not be simply the highest percentage the franchisor thinks the network will accept. It should be a clearly defined, sustainable contribution that funds the support the franchisees need, and leaves both sides capable of building profitable businesses.

The models

Tony: And so, what are the actual options? I’m thinking of things like a percentage, or flat fees, for example. What in your experience do you see, and do you see any of them working better than others?

Liam: The most familiar model is a percentage of sales or turnover, but it’s not the only model I see. Some franchise models have a fixed monthly fee. Some have a tiered percentage that changes as sales increase. Some do a hybrid model, where they’ll have a percentage of turnover but with a minimum monthly fee, so the minimum plus the percentage. Or sometimes it can be a transaction-based model. So there are different ones, but the most common one is a percentage of turnover.

Tony: And do you see any of those as stronger than the others, or are you pretty agnostic about which one is chosen?

Liam: I think they all do something differently. A percentage of sales is popular because as the franchisee’s income grows, the franchisor’s income grows, and that then grows the network. And it provides some protection, I suppose, to a franchisee during the slower periods, because if their turnover reduces or falls, so will their MSF. The drawback of that model is that turnover is not the same as profitability. So even though a franchisee can grow their sales, they can still be financially weaker if their costs have risen more quickly than the sales. But that’s why most go off a percentage of sales.

Tony: I think we’ll come back to that when problems occur, later on in the discussion.

Setting the rate: start with the economics, not the competitors

Tony: So, obviously this involves picking numbers, and as you’ve said, you don’t want to just pick the highest number you think you can get away with. How do you go about setting a rate? What’s reasonable, and what’s the mechanism you think works to work out a particular rate?

Liam: I think what most franchisors do when they come to set the rate is look at what their competitors are charging. So I’d say: don’t begin by asking what percentage competitors charge. Start with the economics of the network. First of all, what support is the franchisor committing to providing to the franchisees? That can include field support, training, systems, network reporting, commercial guidance, brand development, central management, and so on. Secondly, what does it cost to deliver that properly as the network grows? And thirdly, what level of fee can reasonably performing franchisees afford while still achieving a return on their time, or a return on capital?

Only after I’d done that exercise would I compare the proposed rate against the wider market and comparable networks. Essentially, you’d do your own financial model as a franchisor, pick benchmark percentages, see if that’s profitable, and then do a financial model for the franchisees, build that percentage in and see if that’s financially sufficient. Then come up with your answer, and then look to the market from there.

Tony: So that’s looking at the original business as it was before it franchised, and looking into the numbers there.

A percentage of what, exactly

Tony: So let’s say we go for the most popular, a percentage of turnover. Is it invoiced? Is it paid? How do you handle that? Do you take materials off? Are there any credits against things? How does all that typically play out?

Liam: It’s often the most argued point: a percentage of what base. Franchisees and franchisors never really tend to dispute the percentage. It’s the communication of what the percentage is of that is the factor. Saying, for example, “8% of turnover” is not precise enough. The agreement and the reporting systems need to define what counts as turnover. The questions, like you say, can include: is turnover measured before or after VAT? How are refunds, cancellations or credit notes treated? What happens if the franchisee has bad debts? Are delivery fees or service charges included in the calculation? Are there any pass-through costs? With some models, if they do discounts or vouchers, how are they treated? When is the fee triggered: when the customer is invoiced, or when the cash is received? Those are all the questions on the base.

I think the best base is normally one that’s clear, measurable and difficult to manipulate. Many models will say sales excluding VAT and refunds, and clearly define genuine pass-through amounts. But whatever you choose, it needs to be reflected consistently in the franchise agreement, the operations manual, the accounting records and the management service fee report.

Tony: So a lot of it is about clarity?

Liam: It is clarity. If everything says the same, and you’ve got the base, then there’s no real judgement in the decision. This is how it is, in all the documents. So there’s never really an argument over it.

Collecting it: one system, calculated automatically

Tony: That’s nice, and I guess that’s the theory of it. But getting to the practice, how should you go about collecting an MSF? And more specifically, how should you go about dealing with problems with collection, such as late payment or refusal to pay?

Liam: Every franchisor I’ve worked with does this differently. I’ll be honest, every system is different. But I think the easiest model is one where sales data comes directly from a common system that all franchisees use, and the fee is calculated automatically from that. That reduces administration, and it avoids the relationship becoming dependent on someone manually declaring the right number each month. Technology won’t remove all the trust issues, though. Franchisees need to understand what data head office can access, why it is collected, how the fee is calculated, and how errors will be corrected.

The best ones: you can get systems where they’ll take the MSF directly from the sale, pay the franchisee the net amount and the MSF directly to the franchisor. That often stops all questions. So I think the best-practice collection process, in my eyes, would be a common point-of-sale, booking or accounting data source; an agreed reporting period; a clear calculation statement; then collected automatically by direct debit or another automated system; and then any disputes can be raised.

Under-reporting, and not treating every discrepancy as dishonesty

Tony: Have you ever come across — I guess the situation might be different in cash businesses, and it’s funny, I was talking with a legal expert who was saying this is an area where you need to be reasonable with people — in other words, in cash businesses there may be some under-reporting. Do you see that?

Liam: There can be under-reporting if you’re relying on trust or some sort of manual calculation. I think it’s about looking for concerning patterns. Is there consistently late reporting? Are there figures that do not reconcile with other operational data that the franchisor has? Are there unexplained adjustments? Are there unusually high refunds being put through as sales move between periods? Is there some sort of resistance from franchisees to providing records?

But I think franchisors always need to not treat every discrepancy as dishonesty, because very often mistakes are caused by poor bookkeeping, or a misunderstanding, or inconsistent systems across the board. I think the first response should be to establish your facts and then improve the process. But then, if there is consistent under-reporting, look at the legal options.

Tony: Okay, that’s really good advice.

When the network says the fee is too high

Tony: So again, let’s say we’ve got our system working, we’re collecting the fees and all that, but a lot of chatter comes back from the network that the fees are too high, and you hear there may be a sense of a revolt out there in the network. How would you see a franchisor best handling that kind of situation, if they themselves suspect that the revolt might have a point?

Liam: From the franchisees’ perspective, the fairness to them — when I speak to franchisees, it’s not necessarily about paying the lowest fee possible, because I think most franchisees will accept that the central business, the franchisor, needs to be properly funded. The fairness comes from them knowing how the fee is calculated; receiving the support and infrastructure originally promised for that fee, and proof of that; seeing that head office are reinvesting appropriately in the network; being treated consistently, in line with the other franchisees; and having an opportunity to make a profit after paying the franchisor. It’s all about fairness and transparency. The networks that have the least friction are the ones that are transparent and fair across the board.

Changing the rate

Tony: Right. And do you see people ever agreeing to changes in the MSF over time, or do you say to people, try and stick with what you’ve got at all costs?

Liam: People have changed the MSF over time, but it’s a commercially really sensitive figure to change. The starting point must be looking at the existing franchise agreement, and then seeking specialist legal advice on what actually can be changed and when, because it’s based on the contract. But even when a contractual route exists, I think the franchisor needs to make the commercial case before they change it. What has changed since they set the rate? What additional support capability will be provided if the rate changes? Why can that not be funded within the existing model? And what effect will the change have on the franchisees’ profitability?

It should go back to what we talked about at the start, producing a financial model again. If you want to change your rate, build the franchisor model again and the franchisee model again, and ensure there’s commercial substance behind it. Then go to the franchisees with: this is why we’re looking at this new rate, and this is the support you’re going to get. Try to get buy-in. But it’s always going to be sensitive and commercial, always.

The best and the worst systems he’s seen

Tony: Okay. So, my final questions. I’ll put two to you, the same sort of question but opposite sides of the coin. What are the best systems you’ve seen, the smoothest example of MSF collection, and what are the worst?

Liam: One of the best I’ve seen is a system where the franchisee’s customer goes and books an activity, or one of the service lines, through a website or booking system. It takes the sale from the franchisee’s customer, splits it, takes out the MSF, and pays the net to the franchisee and the MSF to the franchisor. So there’s no question then of whether it’s been calculated wrong or not. I think that’s the best and cleanest system I’ve seen.

The hardest is when there are different systems. I’ve seen it where franchisees are allowed to take their sales in all different ways, cash, different systems and so on, and they have to manually submit what sales they’ve taken. The franchisor has to have a lot of trust in their franchise network that they are submitting the sales figures correctly, and there can be a lot of mistakes in there, with no system to pick up on it.

Tony: I was going to say, it sounds like the theme across the board is clarity. If everybody’s clear on what’s being charged, and how, and so on, that makes the job a lot easier.

Liam: Absolutely true.

Tony: Excellent. Well, Liam, thank you for that insight into MSF. Again, I’ll just say this is Liam Wilson from Elevate Accountancy, and I’m sure Liam would be delighted to talk to anybody who wants to find out more about franchise accounting. They’re based in sunny Wrexham. Thank you, Liam.

Liam: No, thank you, Tony. Thanks for having me on.

Tony: Okay, no problem. All right, thank you. Bye bye.

Recorded over Microsoft Teams on 26 October 2026. Transcript lightly edited for clarity.

Liam Wilson FCCA is the founder and director of Elevate Accountancy, a Wrexham firm of accountants whose largest specialism is franchising. Elevate acts for franchisors and franchisees, standardising the finance function across a network so that head office and franchisees are looking at the same numbers, and provides accounting, tax, funding and training support to franchise businesses across the UK. Elevate is on LinkedIn.

Related reading: MSF calculation without the headache · MSF billing edge cases: voids, exemptions and mixed rates · our conversation with Andy Cheetham on becoming a franchisor