How does Big O Tires determine the updated Royalty Matrix for each calendar year?
Big_O_Tires Franchise · 2025 FDDAnswer from 2025 FDD Document
. Each Royalty Matrix will be for the specified calendar year. Big O will make such updates in accordance with methodologies established by Big O in accordance with the recommendations of the franchisee audit committee of the Franchise Advisory Council. The final determination of the Royalty Matrix for any calendar year shall be made by Big O. The methodology used by Big O is as follows until modified and included in the Manual:
- a. The Store-level retail sales will be accumulated by Big O for each Store for the 12-month period ending October 31. This information should be available by the end of November, as many Stores do not report their retail sales to Big O until the end of the following month.
- b. All Stores that were open for less than the full 12 months (as of October 31st) will be eliminated from the data.
- c. Of the remaining Stores, the top 10% based on retail sales and the bottom 10% based on retail sales will be dropped. The middle 80% will be used to calculate an average retail sales amount per Store.
- d. By December 20, the new Royalty Matrix will be completed for the following calendar year, with the first single-Store royalty breakpoint being equal to the greater of: (a) $1.47 million, or (b) the average retail sales figure calculated above, plus $190,000, rounded down to the nearest $10,000. Each subsequent breakpoint will be at $200,000 intervals, until the lowest royalty level is achieved. Currently, the lowest royalty level is 3.5%, but this is subject to change by Big O in its discretion in the future.
- e. The Multi-Store Royalty Group portions of the Royalty Matrix will be calculated using the same percentages that drive the matrix attached to this Schedule 9.
- f. This new Royalty Matrix will be used to determine the Matrix Royalty Rates for the subsequent calendar year (January 1 – December 31). (For instance, the Royalty Matrix based on 2025 revenues will be used to determine the Matrix Royalty Rates applicable in 2026).
- g. Big O, at its sole discretion, may update the Royalty Matrix during the course of a calendar year based on the Store-level retail sales for the 12-month period ending the most recent October 31 or any other more recently ended full or partial 12-month period selected by Big O.
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- Determining the Matrix Royalty Rate for a Particular Franchisee. In general, the Matrix Royalty Rate for a franchisee in any particular calendar year depends on the Gross Sales of the franchisee's single Store in that calendar year or, if the franchisee's Stores are members of a Multi-Store Royalty Group, the Gross Sales of all the Stores in the Multi-Store Royalty Group for that calendar year. The Matrix Royalty Rate on Adjusted Gross Sales for that calendar year will then be determined from the Royalty Matrix based on such Gross Sales for a Single Store or, for a Multi-Store Royalty Group, on such Gross Sales and the number of Stores in that Multi-Store Royalty Group.
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- Royalty Payment and True-Up Rules. The royalty payment and true-up rules will be set by Big O in its sole discretion from time to time. The current form of royalty payment and true-up rules as of the date of this Agreement are set forth in Annex 2 to this Schedule 9.
Schedule 9, Annex 1 Royalty Matrix See attached
Note: The attached Royalty Matrix will be applicable in 2025 or until the next Royalty Matrix becomes effective. A different Royalty Matrix will be applicable in other years. For instance, if you sign a Franchise Agreement in 2026, the Royalty Matrix attached to that Franchise Agreement will be the 2026 Royalty Matrix, not the attached 2025 Royalty Matrix.
Source: Item 23 — RECEIPTS (FDD pages 102–535)
What This Means (2025 FDD)
According to Big O Tires' 2025 Franchise Disclosure Document, the Royalty Matrix is updated annually to determine the royalty rates franchisees will pay. Big O Tires establishes methodologies for these updates, considering recommendations from the franchisee audit committee of the Franchise Advisory Council. However, the final determination of the Royalty Matrix rests solely with Big O Tires. Each Royalty Matrix is applicable for a specific calendar year. For example, the Royalty Matrix based on 2025 revenues will determine the Matrix Royalty Rates applicable in 2026.
The process begins with Big O Tires accumulating store-level retail sales for each store over a 12-month period ending on October 31. This data is typically available by the end of November. Stores that were not open for the entire 12-month period are excluded from the data set. From the remaining stores, the top and bottom 10% based on retail sales are removed, and the middle 80% is used to calculate an average retail sales amount per store.
By December 20, Big O Tires finalizes the new Royalty Matrix for the following calendar year. The first single-store royalty breakpoint is set to the greater of $1.47 million or the average retail sales figure calculated earlier, plus $190,000, rounded down to the nearest $10,000. Subsequent breakpoints are established at $200,000 intervals until the lowest royalty level is achieved, which is currently 3.5% but subject to change at Big O Tires' discretion. The Multi-Store Royalty Group portions of the Royalty Matrix are calculated using the same percentages that drive the matrix attached to Schedule 9. Big O Tires retains the right to update the Royalty Matrix during the year based on store-level retail sales for the 12-month period ending the most recent October 31 or any other more recently ended full or partial 12-month period selected by Big O.
The Matrix Royalty Rate for a franchisee depends on the Gross Sales of their single store or, for Multi-Store Royalty Groups, the combined Gross Sales of all stores in the group for that calendar year. The Royalty Matrix then determines the Matrix Royalty Rate on Adjusted Gross Sales. The royalty payment and true-up rules are set by Big O Tires at its sole discretion, with the current rules detailed in Annex 2 to Schedule 9.