What are the five steps of the revenue model used by Benjamin Franklin Plumbing for revenue recognition?

According to the 2025 FDD, Benjamin Franklin Plumbing follows a five-step revenue model for revenue recognition, adhering to Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. These steps are: identifying the contract with the customer; identifying the performance obligations in the contract; determining the transaction price; allocating the transaction price to the performance obligations; and recognizing revenue when (or as) the entity satisfies a performance obligation. This model is a standard framework used to determine when and how revenue should be recognized in financial statements.

For Benjamin Franklin Plumbing, revenue streams primarily consist of royalty fees, national advertising fees, local advertising fees, software fees, call center fees, and initial franchise fees charged to franchisees. The company's main performance obligation is granting franchisees the right to use its intellectual property throughout the franchise agreement term. Royalty and national advertising fund (NAF) fees, typically based on a percentage of franchisee sales, are recognized as revenue when they become billable, usually monthly. Fixed franchise and NAF fees are recognized on a straight-line basis over the franchise agreement term. Initial franchise fees are also recognized on a straight-line basis over the franchise agreement term, as they are not associated with a service distinct from the overall franchise right.

Local advertising, software, and call center services are considered separate performance obligations because they provide a distinct benefit from the franchise right. Fees for these services are generally billed monthly, either as a fixed amount or based on usage. Revenue is recognized as these services are performed, either on a straight-line basis over the contract term for fixed fees or as invoiced for usage-based fees. Understanding this revenue recognition model is crucial for franchisees as it clarifies how the franchisor accounts for various fees and services, impacting financial reporting and transparency.