What are the primary sources of revenue for 1 800 Packouts, as recognized by the company?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
ue when, or as, performance obligations are satisfied.
Royalties
The Company sells individual franchises as well as territory agreements (Franchise Agreements) that grant the right to operate a location, using the Company's software and trademarks, generally for a period of five or ten years. The franchisees are equipped with certain equipment and samples and are trained at the Company's facilities. The Franchise Agreements require franchisees to pay continuing fees, or royalties, on a monthly basis based on the terms of the Franchise Agreement. Royalty income is based on either a percentage (generally ranging from 2% to 7%) of franchisee gross sales, minimum monthly payments, or other calculated amounts as defined in the Franchise Agreement and is recognized as the royalties are at the franchisees' point of sale.
Amounts recognized as royalties revenue for year ended December 31, 2022 and for the period from inception (April 9, 2021) through December 31, 2021 were $10,191,623 and $2,867,475, respectively.
Call Center Services
The Company provides certain sales and marketing support services for franchisees, including the operation of a call center for inbound-customer and marketing related calls. The fees associated with the call center are structured as either a fixed monthly fee or a variable fee based on the monthly usage of the call center. Revenue for call center services are recognized during the month that the services are performed.
Amounts recognized as call center services revenue for year ended December 31, 2022 and for the period from inception (April 9, 2021) through December 31, 2021 were $2,977,806 and $2,260,582, respectively.
Franchise Fees
The Franchise Agreements require the franchisee to pay an initial fee to obtain the rights associated with the Franchise Agreements. Initial franchise fee revenue is partially recognized upon substantial completion of the startup services required of the Company. The remainder of the franchise fee revenue is recognized over the term of the Franchise Agreement. All fees collected in advance are deferred until performance obligations are met, and revenue is earned. Deferred amounts are classified as contract liabilities in the accompanying consolidated balance sheet.
Franchise sales resulting from leads furnished by independent franchise brokers are subject to a sales commission. The costs of commissions paid to franchise brokers are capitalized and recognized over the same period as the related revenue.
Amounts recognized as franchise fee revenue for the year ended December 31, 2022 and for the period from inception (April 9, 2021) through December 31, 2021 were $3,823,573 and $655,100, respectively.
Equipment and Product Sales
Revenue from the sale of equipment and products is recognized when title and risk of loss transfers to the buyer, which is generally upon shipment.
Amounts recognized as equipment and product sales revenue for the year ended December 31, 2022 and for the period from inception through December 31, 2021 were $3,830,583 and $585,520, respectively.
Advertising Services
Under the terms of the Franchise Agreements, the Company may establish national branding funds and charge a fee of up to 3% of the franchisees' gross receipts to pay for marketing costs that benefit multiple franchises and are used to promote the brands. Marketing revenues and expenses are recognized in equal amounts as marketing expenses are incurred. Any amounts collected but unspent at the end of the year are accrued for as a liability on the accompanying consolidated balance sheets until the related expense has been incurred.
Amounts recognized as advertising services revenue for the year ended December 31, 2022 and for the period from inception (April 9, 2021) through December 31, 2021 was $3,683,755 and $467,575, respectively.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to 1 800 Packouts' 2025 Franchise Disclosure Document, the company recognizes revenue from several sources. These include royalties, which are likely a percentage of gross sales paid by franchisees for the right to use the 1 800 Packouts system and brand. 1 800 Packouts also generates revenue from call center services, where they provide sales and marketing support to franchisees through a call center, charging either a fixed monthly fee or a variable fee based on usage. Franchise fees, collected from franchisees for the rights associated with the Franchise Agreements, are another significant revenue stream. A portion of the initial franchise fee is recognized upon completion of startup services, with the remainder recognized over the term of the agreement.
1 800 Packouts also earns revenue from equipment and product sales, recognized when the title and risk of loss transfer to the buyer, typically upon shipment. Advertising services contribute to revenue, with the company managing national branding funds and charging franchisees up to 3% of their gross receipts for marketing costs. These marketing revenues and expenses are recognized in equal amounts as marketing expenses are incurred. Installation sales, where company-operated franchises provide shower and bath installations, are recognized at the point-in-time the product installation is completed and accepted by the customer.
Additionally, 1 800 Packouts recognizes revenue from vendor rebates, earned when franchisees use certain vendors. Other revenues include fees generated by consulting services, monthly technology access fees, and other miscellaneous fees allowable under the terms of the Franchise Agreements. Consulting and other fees are recognized as revenue once the services have been performed, typically on a short-term, month-to-month basis, while monthly technology access fees are recognized during the month that services are performed. Understanding these various revenue streams is crucial for prospective franchisees to assess the financial dynamics of the 1 800 Packouts franchise system.