How is the average monthly Gross Sales determined for a Bft franchise when calculating Lost Revenue Damages if the studio operated for less than 24 months?
Bft Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisor and Franchisee agree that Franchisor will suffer compensable damages including, among others, the amount of the Royalty and Fund Contributions it would have received, and for which it bargained in entering into this Agreement, if Franchisee terminates this Agreement without cause or Franchisor terminates this Agreement because of Franchisee's breach (the "Lost Revenue Damages"). Franchisor and Franchisee acknowledge that, because Royalty and Fund Contributions are calculated as a percentage of the Studio's Gross Sales, it will be impossible to calculate Lost Revenue
Damages once the Studio ceases operation. To bring certainty to that determination, Franchisor and Franchisee agree that Lost Revenue Damages will equal the net present value of: (1) the lesser of 36 or the number of calendar months remaining on the Term absent the termination, multiplied by (2) the sum of the Royalty and Fund Contribution percentages in effect as of the termination date, multiplied by (3) the average monthly Gross Sales of the Studio during the 24 full calendar months immediately preceding the termination date, minus (4) any cost savings Franchisor experienced as a result of the termination; provided, however, that if (i) as of the termination date, the Studio had not operated a full 24 calendar months, monthly average Gross Sales will equal the highest monthly Gross Sales achieved during the period in which it operated, and (ii) if the termination was based on Franchisee's unapproved closure of the Studio, average monthly Gross Sales would be based on the 24 full calendar months immediately preceding the closure of the Studio.
Source: Item 23 — RECEIPTS (FDD pages 79–265)
What This Means (2025 FDD)
According to Bft's 2025 Franchise Disclosure Document, the calculation of Lost Revenue Damages in the event of a termination includes a component based on the average monthly Gross Sales of the studio. If the Bft studio has not operated for a full 24 calendar months as of the termination date, the average monthly Gross Sales will be determined by taking the highest monthly Gross Sales achieved during the period in which the studio was in operation. This figure is used to calculate the Lost Revenue Damages.
This method benefits the franchisor, Bft, by ensuring that the damages calculation is based on the highest-performing month rather than averaging potentially lower sales figures from the initial months of operation. For a franchisee, this means that even if the studio is relatively new and has not yet reached its full potential, the Lost Revenue Damages could be significant if the termination occurs after a particularly successful month.
It is important to note that this calculation method only applies if the studio has operated for less than 24 months. If the studio has a longer operating history, the average monthly Gross Sales will be calculated based on the 24 full calendar months immediately preceding the termination date. Additionally, if the termination is due to the franchisee's unapproved closure of the studio, the average monthly Gross Sales will be based on the 24 full calendar months immediately preceding the closure, regardless of how long the studio was in operation.
Prospective franchisees should carefully consider these terms and understand the potential financial implications of early termination, especially in the initial stages of operating their Bft studio. Understanding how Lost Revenue Damages are calculated can help franchisees make informed decisions about their business and manage their risk effectively.