How are the initial franchise fees determined for Better Blend?
Better_Blend Franchise · 2024 FDDAnswer from 2024 FDD Document
bligation in the contract, and (v) the Company has satisfied the applicable performance obligation.
The Company's revenue consists of fees from franchised restaurants operated by conventional franchisees. Revenue from conventional franchised restaurants include initial franchise fees, royalties based on percent of sales, marketing fees based on percent of sales, and development fees for locations the franchisee opens in addition to the initial location.
Royalties are collected on a weekly basis and are based on certain percentage as specified on the franchise agreement. Marketing fees are based on up to 1% of gross revenue. The marketing fund is used for marketing expenses related to maximizing public recognition of the Company's brand and marketing fund.
Franchise fee revenue was approximately $2,600 for the year ended December 31, 2022. The initial franchise fees collected are determined on a franchisee-by-franchisee basis.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 43)
What This Means (2024 FDD)
According to Better Blend's 2024 Franchise Disclosure Document, the initial franchise fees are determined on a franchisee-by-franchisee basis. For the year ending December 31, 2022, Better Blend collected approximately $2,600 in franchise fee revenue. As of December 31, 2022, Better Blend had three franchisees under contract, none of which were operational at that time. As of December 31, 2023, Better Blend had ten franchisees under contract, four of which were operational.
This indicates that the initial franchise fee is not a fixed amount but is instead negotiated or set individually with each franchisee. This approach can offer flexibility but also introduces potential for inconsistency and perceived unfairness among franchisees. Factors influencing the fee determination could include the franchisee's experience, the location's market potential, or specific terms negotiated in the franchise agreement.
A prospective Better Blend franchisee should inquire about the specific criteria and factors Better Blend uses to determine the initial franchise fee. Understanding the range of fees charged to other franchisees and the rationale behind the fee structure is crucial for informed decision-making. This information can help a franchisee assess the fairness and value of the franchise offering.
It's also important to note that while the initial franchise fee revenue was approximately $2,600 for the year ended December 31, 2022, deferred revenue was significantly higher at $145,000. Deferred revenue represents unearned revenue from the sale of new franchises and approval of new locations, which is recognized over the term of the franchise agreement as performance obligations are satisfied. This highlights the importance of understanding how Better Blend recognizes revenue and manages its financial obligations related to franchise fees.