For a 7 Brew franchise, what is the definition of Net Sales, and how does it relate to Gross Sales?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
| The average and median Store-Level EBITDAR | |
|---|---|
| margins are the numbers resulting arithmetically from calculating the average and median | |
| performance, respectively, in all of the sales, profit, and expense line-items appearing in the | |
| Exhibit 2 statement. |
- i. "Gross Sales" means the aggregate revenue received from selling, or providing services with respect to, beverages, food, other menu items, and merchandise, whether for cash or on credit, less (a) applicable sales taxes collected and remitted to the appropriate tax authority, (b) valid coupon credits and employee discounts deducted from revenue initially recorded as Gross Sales in an amount equal to 2% of such Gross Sales, and (c) revenue derived from selling or issuing gift cards and loyalty cards (although revenue derived from selling products and services to customers using those cards for payment is included in Gross Sales), but without deducting any other costs or expenses whatsoever. Of the 180 Measured Stores, 91 Stores (51%) exceeded the sample's average Gross Sales of $2,040,883.
- ii. Of the 180 Measured Stores, 101 Stores (56%) exceeded the sample's average Net Sales margin of 97.18%.
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 61–73)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, Gross Sales is defined as the total revenue a store receives from selling beverages, food, merchandise, and related services, whether the customer pays with cash or credit. However, this total is reduced by a few specific items: applicable sales taxes that the store collects and pays to the government, valid coupon credits and employee discounts up to 2% of Gross Sales, and revenue from the initial sale of gift cards and loyalty cards. It's important to note that while the initial sale of these cards is subtracted, revenue earned when customers use these cards to purchase products is included in Gross Sales. No other costs or expenses are deducted from Gross Sales.
Net Sales, on the other hand, is a more refined figure. It is calculated by taking the Gross Sales and subtracting discounts, excluding the valid coupon credits and employee discounts that were already deducted from Gross Sales. In essence, Net Sales represents the revenue 7 Brew actually keeps after certain discounts are applied, providing a clearer picture of the store's earnings from sales.
The relationship between Gross Sales and Net Sales is important for a franchisee to understand because it highlights the impact of discounts on overall revenue. While Gross Sales provides a top-line view of total sales activity, Net Sales offers a more accurate representation of the revenue available to cover costs and generate profit. For example, the 2025 FDD states that 91 of 162 Franchised Stores (56%) exceeded the sample's average Net Sales margin of 97.05% during Fiscal Year 2024. This means that, on average, these stores retained over 97% of their gross sales after deducting the specified discounts.
Understanding these definitions is crucial for a prospective 7 Brew franchisee because it allows them to accurately interpret the financial performance representations provided in the FDD. By knowing how Gross Sales and Net Sales are calculated, franchisees can better assess the potential profitability of a 7 Brew location and make informed decisions about their investment. Furthermore, these definitions will be important for tracking and managing their own store's financial performance once operational.