What are the primary components of the transaction price in a standard Batteries Plus Bulbs franchise agreement?
Batteries_Plus_Bulbs Franchise · 2025 FDDAnswer from 2025 FDD Document
e agreement are payable upon execution of the agreement and are nonrefundable. The remaining fees for multiple-unit franchise agreements are payable upon execution of the franchise agreement for each store developed pursuant to the multiple unit franchise agreement.
The franchise agreement between the Company as the franchisor and the franchisee as the customer requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality. The nature of the Company's promise in granting the franchise license is to provide the franchisee with access to the brand's symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation. The transaction price in a standard franchise agreement primarily consists of: (a) initial franchise/development fees; (b) continuing franchise fees (royalties and other fees); and (c) marketing fund fees. Since the Company considers the licensing of the franchising right to be a single performance obligation, no allocation of the transaction price is required.
The Company recognizes the primary components of the transaction price, which is based upon a standalone selling price, as follows:
Franchise fees and other up-front system access fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with store opening date. As these fees are
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2024 and 2023 (Dollars in thousands, except per share amounts)
typically received in cash at or near the beginning of the franchise term, the cash received is initially recorded as a contract liability until recognized as revenue over time.
The Company is entitled to monthly royalties and marketing fund fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and marketing fund revenue are recognized when the franchisee's reported sales occur. Other fees consist primarily of point-of-sale computer support and technology access fee charges to franchised stores which are earned upon completion of the service, which is typically monthly. Depending on timing within a fiscal period, the recognition of revenue results in accounts receivable on the consolidated balance sheets.
Source: Item 21 — Financial Statements (FDD pages 79–80)
What This Means (2025 FDD)
According to the 2025 Batteries Plus Bulbs Franchise Disclosure Document, the transaction price in a standard franchise agreement primarily consists of three components. These are: the initial franchise or development fees, continuing franchise fees (royalties and other fees), and marketing fund fees. Batteries Plus Bulbs considers the licensing of the franchising right to be a single performance obligation, so they do not allocate the transaction price among different elements.
Batteries Plus Bulbs recognizes franchise fees and other up-front system access fees as revenue ratably on a straight-line basis over the term of the franchise agreement, starting from the store opening date. Typically, these fees are received in cash at or near the beginning of the franchise term. Until the revenue is recognized over time, the cash received is initially recorded as a contract liability.
Batteries Plus Bulbs is also entitled to monthly royalties and marketing fund fees, which are calculated as a percentage of the franchisee's gross sales as defined in the franchise agreement. The royalty and marketing fund revenue are recognized when the franchisee's reported sales occur. Other fees primarily consist of point-of-sale computer support and technology access fees charged to franchised stores, which are earned upon completion of the service, typically monthly. Depending on the timing within a fiscal period, the recognition of revenue results in accounts receivable on the consolidated balance sheets. Certain marketing fund fees are billed a month in advance of the service period; however, no revenue is recognized until the franchisee sales occur for the given period.
For a prospective franchisee, this means understanding that the initial investment covers not just the right to open a Batteries Plus Bulbs store, but also ongoing support and brand access. The initial fees are recognized as revenue by Batteries Plus Bulbs over the life of the franchise agreement. Franchisees will also need to budget for continuing royalty and marketing fees based on a percentage of their gross sales, as well as potential technology and support fees. The marketing fees, although sometimes billed in advance, are tied directly to sales performance, aligning the franchisee's costs with revenue generation.