Does Bath Tune Up require an estimate of future transaction price for sales-based fees?
Bath_Tune_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise royalty income consists of sales-based variable fees paid by franchisees and are billed and due monthly. The sales-based royalty fee is considered variable consideration and will continue to be recognized as revenue as such sales are earned by the franchisees. Sales-based fees qualify under the royalty constraint exception, and do not require an estimate of future transaction price.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 51–52)
What This Means (2025 FDD)
According to Bath Tune Up's 2025 Franchise Disclosure Document, the company does not require an estimate of future transaction price for sales-based fees. The document states that sales-based fees qualify under the royalty constraint exception. This means that Bath Tune Up recognizes revenue as the sales are earned by the franchisees.
This accounting treatment is significant for franchisees because it aligns the franchisor's revenue recognition with the franchisee's actual sales performance. The variable sales-based royalty is considered variable consideration because it is recognized as revenue as the related sales are earned by the franchisees. The percentage of royalty applied on the sales varies based on franchise agreements, and may include royalty percentage de-escalation clauses whereby the royalty percentage applied on the sales generated are decreased if certain sales thresholds are obtained.
In simpler terms, Bath Tune Up doesn't try to predict or estimate how much franchisees will sell in the future for the purpose of calculating royalties. Instead, they base the royalty fees on the actual sales that franchisees make each month. This approach is common in franchising, as it directly links the franchisor's income to the success of its franchisees and avoids potential disputes over estimated sales figures.