How is the 'Adjusted Gross Sales Royalty Rate' determined for Big O Tires?
Big_O_Tires Franchise · 2025 FDDAnswer from 2025 FDD Document
Adjusted Gross Sales Royalty Rate – The percentage applied to Adjusted Gross Sales to determine the Adjusted Gross Sales royalty fee, which percentage is the Matrix Royalty Rate.
Royalty Matrix – The matrix included in Schedule 9 to this Agreement that is used as the basis for calculating the royalty rate under Section 8.02 of this Agreement. The Royalty Matrix is subject to change by Big O from time to time as provided in Schedule 9, provided that the Royalty Rate may not exceed the maximum royalty rate set forth in Schedule 9.
Royalty Rate – The percentage applied to Adjusted Gross Sales, Gross Sales to National Account Customers or Key Account Customers, Gross Sales of Farm Class Tires, or Excess Service Department Sales, to determine the royalty fee. Under this Agreement, the Royalty Rate for Gross Sales to National Account Customers and Key Account Customers, for Gross Sales of Farm Class Tires, and on Excess Service Department Sales is 2%, and the Royalty Rate for Adjusted Gross Sales is the Adjusted Gross Sales Royalty Rate.
Notwithstanding any agreement or anything in this Royalty Matrix to the contrary, in the event that Big O has granted a franchisee a financial incentive (including but not limited to a trade account credit incentive or similar incentive) that is based on the franchisee's gross sales levels and which has the overall result of reducing the effective royalty rate of the franchisee, then the lowest applicable royalty level that shall apply under this Royalty Matrix will be 3.5%.
The Royalty Matrix is used to determine your Store's Royalty Rate based on the amount of your calendar year Store Gross Sales or, if you own more than one Store, then the Stores included in a Multi-Store Royalty Group approved by Big O. The Royalty Rates currently range from 3.5% to 5.0%.
As stated in Section 1 (in the definition of "Royalty Matrix") of the Franchise Agreement, the Royalty Matrix is subject to change by Big O from time to time as provided in Schedule 9, provided that the royalty rate (when the Royalty Matrix is applicable) may not exceed the maximum royalty rate set forth in this Schedule 9.
Source: Item 23 — RECEIPTS (FDD pages 102–535)
What This Means (2025 FDD)
According to the 2025 Big O Tires Franchise Disclosure Document, the Adjusted Gross Sales Royalty Rate is determined by a Royalty Matrix. This matrix applies a percentage to the Adjusted Gross Sales to calculate the royalty fee. Adjusted Gross Sales are defined as Gross Sales excluding sales to National Account Customers, Key Account Customers, sales of Farm Class Tires, Excess Service Department Sales, and sales on which no royalty is due. The Royalty Rate for Adjusted Gross Sales is referred to as the AGS Royalty Rate.
The Royalty Matrix in effect at the time of the Franchise Agreement is included as Annex 1 to Schedule 9 and applies to AGS Sales earned in the specified calendar year, or until the next Royalty Matrix becomes effective. Big O Tires updates the Royalty Matrix for each calendar year, distributing it to franchisees. These updates are made based on methodologies established by Big O, following recommendations from the franchisee audit committee of the Franchise Advisory Council.
The Royalty Matrix is used to determine a store's Royalty Rate based on the store's annual Gross Sales or, for franchisees owning multiple stores, the combined Gross Sales of stores within an approved Multi-Store Royalty Group. Royalty Rates currently range from 3.5% to 5.0%. Single-store franchisees can locate their store's annual Gross Sales in the "Single Store" column of the Royalty Matrix and then refer to the "Resulting Royalty Percent" column to determine their Royalty Rate. For Multi-Store Royalty Groups, franchisees should locate the column corresponding to the number of stores in their group and find the row containing the highest sales amount that does not exceed their group's combined Gross Sales, then refer to the "Resulting Royalty Percent" column to determine their Royalty Rate.
Big O Tires retains the right to change the Royalty Matrix from time to time, as provided in Schedule 9 of the Franchise Agreement. However, the royalty rate, when the Royalty Matrix is applicable, may not exceed the maximum royalty rate set forth in Schedule 9. Additionally, if Big O Tires grants a franchisee a financial incentive that reduces the effective royalty rate based on gross sales levels, the lowest applicable royalty level under the Royalty Matrix will be 3.5%.