Hidden Costs, Missed Opportunities: The Price of Not Adapting Your Royalty Audit Programs

Innovation and agility cannot coexist with the status quo. And while being hesitant to change things can be a symptom of healthy scrutiny, outdated royalty compliance programs and processes shouldn’t be upheld when they can’t scale and adapt with your business. 


Many companies are missing out on opportunities to make royalty programs more efficient and accurate—85% of licensors state that there are typically errors in their royalty reporting caused by underreporting, manual processes, and human error. Yet many companies continue to choose familiarity over potential, sticking with existing technology and strategies in order to avoid perceived short-term disruption. It can be a costly choice, resulting in lower revenues and royalty programs that do not achieve their full potential.


Lessons in Limitation: COVID-19 and Global Knowledge


Most consultancy work involves meeting with clients in person, and traditionally relies on a lot of travel—not to mention multi-day onboarding sessions to get everyone up to speed and trained in executing effectively. With the world locked down under COVID-19 restrictions, boarding a plane or planning extended on-site stays isn’t feasible. 


Many audit firms have turned to remote-only audits in the face of the inability to travel, but sticking solely to virtual interactions isn’t ideal for royalty compliance programs. Full remote audits produce inconsistent outcomes, and can introduce new challenges, errors, and miscommunications—and with the vast majority of licensors stating that mistakes are common in royalty reports, there’s no room for added inaccuracy. 


More importantly, today’s circumstances require more than temporary solutions. COVID-19 has changed the way all major businesses operate forever in terms of employee safety, digitization, and the way we communicate and collaborate with each other. Royalty compliance teams and service providers need long-term adaptation strategies, not those designed to keep organizations afloat until things return to the way they were. 


Our hybrid solution is simultaneously centered around fast flexibility and employee safety for both ourselves and the licensee. Rather than cobbling together one-time teams of local translators and data collectors, we leverage top, local consulting talent across all of our key geographic locations. Our global team includes consultants who have deep compliance and audit experience, and live and work in the regions we serve.


This global-local method means that clients have access to local resources and experts who can provide effective compliance services with just enough oversight from the U.S., keeping costs low and trainings short. We can immediately engage with our clients and licensees while limiting face-to-face interactions, keeping our calendars flexible, and without having to consider the risks or expense of travel. It also gives us multidimensional insight into our customers, and makes knowledge-sharing one of the most valuable and powerful tools we have.  


A Solutions-Driven Approach to Royalty Compliance


Successful royalty compliance programs should be self-sustaining, and a solutions-driven, hybrid approach is the only way to ensure that royalty compliance programs remain effective, that customer and licensee relationships remain intact, and knowledge transfer and best practice sharing still happens between auditors and licensees. A fully remote approach makes the audit a transactional experience, which is not what it should be.


Most commonly, unreported or underreported royalties are an avoidable issue resulting from two things: licensees relying too heavily on manual processes or inaccurately interpreting contractual terms and conditions. A comprehensive audit program helps licensors identify commonly misused or misunderstood agreement terms, improving the accuracy of future reporting. More accurate royalty reporting also helps licensors identify gaps or misinterpretations in all of their agreements, and proactively address them before the financial impact snowballs and undermines or hurts the relationship with the licensee.  


But beyond accuracy and ROI, solid compliance programs educate clients, enabling them to continually refine and improve processes, reduce surprises (such as unexpected costs), and make smarter decisions over time, creating exponential returns for the business. More specifically, taking a solutions-driven approach to royalty compliance streamlines all of the processes surrounding royalty management. Without access to both global and local expertise inside of a given industry, important information is always missing—and no one will know what it is until it’s already a problem. But with full visibility into how things work on a micro and macro level, it’s far easier to identify control gaps and potential process improvements. 


Data-Based Decisions, Smarter Business Moves


All businesses rely on data, but it’s often mishandled or even absent from royalty compliance programs. Inaccurate or misinterpreted data leads to reporting mistakes and financial discrepancies, and if a licensor undergoes any significant operational restructuring—mergers, acquisitions, divestitures—bad data can put an even greater strain on the licensor/licensee partnership, and negatively impact the lifetime value (and returns) of that relationship. 


At Connor, we invest in technology that supports agility and flexibility across our entire global team. We use cutting-edge platforms to automate repetitive, manual tasks and reduce the time it takes to run analyses, surface trends, and pinpoint royalty reporting inconsistencies. This 360° consulting approach enables us to enhance the entire royalty licensing lifecycle, drive unmatched ROI, clarify licensor/licensee communications, and deliver more efficient, accurate, and tailored services to each of our clients. And in an age defined by disruption, that level of dependability is as valuable, if not moreso, as the financial returns and long-term improvements it drives.   


Visit our website or email us at info@connor-consulting.com to schedule a complimentary consultation.