Under what condition does an Alloy franchisee have to pay a royalty fee shortfall?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
ave the right to collect this tax from you.
For any year you fail to achieve the minimum annual Gross Sales, you must pay any shortfall of royalty fees for each failure to achieve the minimum annual Gross Sales. The shortfall amount equals 7% of the difference between your actual Gross Sales for the year and the minimum annual Gross Sales for that year. The required minimum annual Gross Sales for the first year of operation from the first day you open the Facility for business is $240,000. The second year will be the 12 month period beginning with your first anniversary date from the opening of the facility (this 12 month period is referred to as Year 2). The minimum annual Gross Sales for Year 2 and for each following year through the end of the initial
Source: Item 6 — OTHER FEES (FDD pages 15–20)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, a franchisee must pay a royalty fee shortfall if they fail to achieve the minimum annual Gross Sales. This shortfall is calculated as 7% of the difference between the franchisee's actual Gross Sales for the year and the minimum annual Gross Sales required.
The minimum annual Gross Sales requirement varies depending on the year of operation. For the first year, starting from the day the Alloy facility opens for business, the minimum is $240,000. In the second year, defined as the 12-month period beginning on the first anniversary of the facility's opening, and for each subsequent year through the initial term of the Franchise Agreement, the minimum annual Gross Sales is $300,000.
For example, if an Alloy franchisee's Gross Sales in their second year of operation are $250,000, they would be $50,000 short of the $300,000 minimum. The royalty fee shortfall would then be 7% of $50,000, which equals $3,500. This amount would be owed to Alloy in addition to any regular royalty fees based on actual gross sales. This condition incentivizes franchisees to meet sales targets and can significantly impact profitability if sales underperform.