When are amounts received for gift cards recognized as Gross Revenue for an Apricot Lane franchise?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
You must pay a Royalty on a semi-monthly basis of 5.5% of Gross Revenues. "Gross Revenues" means and includes all revenue and income of any nature earned or derived in connection with the operation of the Franchised Business or the use of the Marks and the System, including but not limited to revenue from the sale at retail (through any distribution channel) or at wholesale of merchandise and services to your customers whether received in the form of cash, check, redemption of a gift card or gift certificate, services in kind, from barter and/or exchange, on credit (whether or not payment is received) or otherwise. There will be deducted from Gross Revenues the amount of all sales tax receipts or similar tax receipts which, by law, are chargeable to customers, if such taxes are separately stated when the customer is charged and if such taxes are paid to the appropriate taxing authority. The amount of any documented refunds, charge backs, credits and allowances given in good faith to customers by you will also be deducted from Gross Revenues. For purposes of calculating Gross Revenues, amounts received in payment for gift cards will not be recognized as Gross Revenue upon the sale of the gift cards, but upon the redemption of the gift cards in the amount redeemed.
Source: Item 6 — OTHER FEES (FDD pages 11–14)
What This Means (2025 FDD)
According to Apricot Lane's 2025 Franchise Disclosure Document, the timing of when gift card revenue is recognized as gross revenue is specifically addressed. For royalty calculation purposes, Apricot Lane franchisees do not include the value of gift cards at the time of sale in their gross revenues. Instead, the amount is included in gross revenues only when the gift card is redeemed by a customer. The amount recognized is the amount actually redeemed. This policy affects when Apricot Lane franchisees must pay royalties on gift card sales.
This approach to gift card revenue recognition is important for franchisees to understand for financial planning and royalty payment purposes. By deferring the recognition of revenue until redemption, franchisees are not paying royalties on money received that has not yet translated into a sale of goods or services. This can help with cash flow management, as the royalty payment is aligned with the actual transaction.
Franchisees should carefully track gift card sales and redemptions to accurately report gross revenues and calculate royalty payments. This deferred recognition is a notable benefit for franchisees, as it aligns royalty payments with actual sales transactions rather than upfront cash inflows. This contrasts with some businesses that might recognize the revenue immediately upon the sale of the gift card.