Medical Spa MD - Inside Sona Medspa series Part 4: Legal Structure & Revenue Sharing
These posts are written by former Sona Medspa owner Ron Berglund to provide an inside view of the way medical spa franchises recruit, train, and support their owners as well as detailing some of the problems with medspa franchises.
The Medical Spa Legal Structure & Revenue Sharing
Who owned what?
My partner and I set up an LLC to own and operate our laser center. Since our intention was to "dominate the market" in the Twin Cities, he and his daughter executed both Sona franchise agreements and "area development agreements" for the greater Minneapolis metropolitan area and he and I did the same for the St. Paul area. The agreements were rather vague as to the number of centers required to maintain "exclusivity" for the Twin Cities, but these concerns soon became semantics due to the inability of the business model to generate real profits.
How was the money divided?
My partner and I were 50/50 owners of our LLC. Sona had no ownership interest in the LLC, but shared in revenues generated each month by virtue of the "revenue sharing" provisions contained in the franchise agreement.
The standard franchise agreements contained a sliding scale ranging from a 27% share of gross revenues at the $60,000 monthly revenue level which percentage dropped to under 20% when monthly revenue exceeded $100,000.
My partner and I received a slightly reduced revenue share percentage which started at 22% of gross revenues due to the fact that my partner was one of the original Sona affiliates. The revenue share payment encompassed the franchise royalty, laser lease and laser maintenance and service.
What did we have to do?
In accordance with the franchise agreement, we had to follow all the Sona dictates and limitations on our operations-- right or wrong-- or be faced with an action for violation of the agreement.
During the first year of operations we were limited to performing strictly laser hair removal services utilizing the Sona/Cynosure Alexandrite and Nd:YAG lasers. We could not do anything else-- or use any other equipment-- during the first year of operations. We were not even allowed to sell any product. I got in trouble for trying to sell SkinCeuticals sun block as Sona didn't even offer a sun block! We wererequired to spend a minimum of 15% of gross revenues on advertising and marketing but were encouraged to spend more. At this point we were being told that the "successful" operations such as St. Louis were spending over 20% and were doing gangbuster business. Sona was of course happy to see its franchisees spending enormous amounts on advertising since Sona's revenue share was based entirely on gross revenues. Whether a franchisee actualy made any real PROFIT or not was not their concern.
During the second year of our tenure Sona introduced a very "half baked" program for skin rejuvenation services including the DiamondTome microdermabrasion system, the VISIA skin analysis system, the Cynosure "Mini V" pulsed dye laser, and several other pieces of equipment.
How much control did Sona have?
Due to Sona's extremely one-sided franchise agreement, they had pretty much 100% control over our operations. We were free to hire our own employees and medical director and determine how much to spend -- and where-- for advertising, but that was pretty much the deal. Sona furnished many sample print ads but allowed us to create our own so long as we gave them an opportunity to "approve" them before publication.