SaaS & Technology Groups · Track 3 · Tutorial 2 of 2

Read each company’s margin after IP royalties

A royalty to the IP company shifts profit between your companies, so no company’s own margin shows how its business is doing. Reading each margin before and after the royalty, next to the group’s, does.

You will needRoyalties eliminated, as in Eliminate platform fees between companies in different currencies. Access to Reports and Account Mapping.

By the endEach operating company’s and the IP company’s October margin read before and after royalties, next to the group’s.

1Know why each company’s margin moves

The IP company charges each operating company a royalty for the software, at a rate set for tax and transfer pricing. The royalty moves profit from the operating companies to the IP company, but not out of the group:

Operating companies	Their margin is after a cost the group doesn’t pay.
IP company	Its margin includes income the group doesn’t earn.
The group	Both sides are eliminated, so its margin is unaffected by the royalty rate.

Read each company’s margin both ways: after royalties, as its books show it, and before, to see how the business it runs performs.

2Put the royalty on the same line in every company

Where the royalty is mapped decides which margin it reduces:

Mapped to	Reduces
DIRECT COSTS	GROSS PROFIT and OPERATING PROFIT
EXPENSE	OPERATING PROFIT only

On Settings → Global Settings → Account Mapping, map every operating company’s royalty expense to the same group account, and the IP company’s royalty income to a REVENUE account of its own, so the margins can be compared.

Account Mapping for an operating company: Royalty expense mapped to 5300 Royalty expense in DIRECT COSTS — The company (1), its royalty account (2), the group account (3), and Save (4).

3Lay the companies side by side

Select Your Group, and open Reports → Profit & Loss for Oct-2026.
Turn on Show Entities.

Each company has a column, then Elims/Adj and the group. The royalty is a cost in each operating company’s column and income in the IP company’s, and both are taken out in Elims/Adj, as in Eliminate platform fees between companies in different currencies.

4Read the margins

Margin	Read it as
Operating company, after royalties	Its OPERATING PROFIT ÷ its REVENUE, as the report shows them.
Operating company, before royalties	(Its OPERATING PROFIT + its royalty expense) ÷ its REVENUE.
IP company, before royalties	Its OPERATING PROFIT less its royalty income: what owning and developing the software costs the group.
The group	Its OPERATING PROFIT ÷ its REVENUE in the group column, with no royalty in either.

If an operating company’s margin before royalties is healthy and after royalties is thin, the royalty rate is doing what it was set to do; the business itself is sound. If it is thin both ways, the problem is the business, not the royalty.

An operating company profit and loss: a royalty mapped to DIRECT COSTS lowers gross and operating profit; mapped to EXPENSE it lowers operating profit only; margin after royalties and before royalties — Mapped to DIRECT COSTS (1), mapped to EXPENSE (2), and the margin both ways (3).

Check

In the group column the royalty lines are empty, and on OPERATING PROFIT the company columns plus Elims/Adj equal the group.

5If something goes wrong

What you see	What to do
The royalty is still in the group column	It isn’t eliminated, or only partly. Check the rule and Elimination Review for the month.
One operating company’s gross margin is much higher than the others’	Its royalty is mapped to EXPENSE and the others’ to DIRECT COSTS. Map them all to the same group account.
A foreign company’s figures don’t match its books	They are translated into the group currency. Compare its margin, not its amounts, with its own report.

Want more detail? See the documentation

Viewing Reports Account Mapping Intercompany Eliminations Guide

All tutorials